Court Opinion

ID: 2775570
Source: CourtListenerOpinion
Date Created: 2015-02-02 17:08:21.009338+00
Date Added: 2024-06-11T11:27:58.024944
License: Public Domain

STATE OF MINNESOTA
                             IN COURT OF APPEALS
                                   A14-1121

                              Sprinkler Warehouse, Inc.,
                                      Appellant,

                                          vs.

                  Systematic Rain, Inc., d/b/a GPLAWN.com, et al.,
                                    Respondents.

                              Filed February 2, 2015
                              Reversed and remanded
                               Cleary, Chief Judge

                              Scott County District Court
                               File No. 70-CV-13-3226

Clarence J. Kuhn, The Kuhn Law Firm, P.L.L.C., Edina, Minnesota (for appellant)

Bryan R. Battina, William K. Forbes, Trepanier MacGillis Battina P.A., Minneapolis,
Minnesota (for respondents)

      Considered and decided by Larkin, Presiding Judge; Cleary, Chief Judge; and

Hudson, Judge.

                                   SYLLABUS

      Under Minn. Stat. § 571.73, subd. 3 (2014) domain names and the copyright-

protected material contained in websites are subject to garnishment.          To effect

garnishment of these types of property, a court shall compel transfer of the website and

domain name to a receiver for sale and application of the proceeds against the

judgment debt.
                                    OPINION

CLEARY, Chief Judge

      Appellant Sprinkler Warehouse, Inc. (Sprinkler) appeals from the district

court’s determination that a website and domain name, registered to respondent James

R. Palm and used by respondent Systematic Rain, Inc., d/b/a GPLAWN.com

(Systematic Rain), are not subject to garnishment under Minn. Stat. § 571.73, subd. 3.

The website at issue was used by respondent Systematic Rain for its online business,

and can be located at the domain name . Because websites and domain

names constitute property and are subject to garnishment under Minn. Stat. § 571.73,

subd. 3, we reverse and remand.

                                       FACTS

      In 2012, Sprinkler initiated a lawsuit in Texas against Systematic Rain, alleging

that Systematic Rain had infringed on Sprinkler’s copyrighted material by using the

material without authorization on Systematic Rain’s website.       At that time, both

Sprinkler and respondent Systematic Rain operated online sprinkler parts distribution

businesses. A default judgment was entered against Systematic Rain in Texas. A

$156,000 judgment was subsequently docketed against Systematic Rain in Scott

County, Minnesota.

      In January 2014, Sprinkler served a garnishment summons on Palm, the chief

executive officer of Systematic Rain. On Palm’s garnishment disclosure forms, Palm

stated that he did not have any of Systematic Rain’s non-earnings property to garnish.

Sprinkler filed an objection to Palm’s garnishment disclosure, arguing that the website

                                          2
and domain name were Systematic Rain’s property under Palm’s control and subject to

garnishment. On May 7, 2014, the district court held that the website and domain

name did not constitute property subject to garnishment under Minn. Stat. § 571.73,

subd. 3. This appeal followed.

                                      ISSUES

      I.     Is a registered domain name subject to garnishment?

      II.    Is a website subject to garnishment?

      III.   What is the appropriate procedure for garnishment of a website and

domain name?

      IV.    What factual determinations must be made on remand?

                                    ANALYSIS

      The questions of whether websites and domain names are subject to

garnishment under Minn. Stat. § 571.73, subd. 3 are issues of first impression in

Minnesota. The application of a statute to undisputed facts is a legal conclusion,

which this court reviews de novo. Weston v. McWilliams & Assocs., 716 N.W.2d 634,

638 (Minn. 2006). “No deference is given to a lower court on questions of law.”

Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn. 2003).

      Under Minnesota law, the types of property that are attachable by garnishment

include:

                    (2) all other nonexempt indebtedness, money, or
             other property due or belonging to the debtor and owing by
             the garnishee or in the possession or under the control of
             the garnishee at the time of the service of the garnishment

                                          3
              summons, whether or not the same has become
              payable. . . .
                     (3) all other nonexempt intangible or tangible
              personal property of the debtor in the possession or under
              the control of the garnishee at the time of service of the
              garnishment summons, including property of any kind due
              from or in the hands of an executor, administrator, personal
              representative, receiver, or trustee . . . .

Minn. Stat. § 571.73, subd. 3(2), (3). Minnesota cases interpreting section 571.73,

subdivision 3 and its predecessor statutes have concluded that the following types of

intangible property are subject to garnishment: a certificate of indebtedness given by

the United States for personal services;1 shares of corporate stock, even if not yet

delivered to the shareholder;2 state railroad bonds;3 documents, including bearer

bonds;4 and interest of a creditor in property conveyed to trustees, the proceeds to be

distributed to creditors.5

       Because websites and domain names are conceptually distinct, we consider

separately the questions of whether domain names and websites are subject to

garnishment. A website is made up of all of the visual and audio elements that a

person experiences while using the Internet. A domain name is the alphanumeric

designation that allows a person to reach a particular website. A website and domain

name can be analogized to a house and its address, for the purpose of understanding

how both the website and domain name can share the same “name,” but are

1
  Leighton v. Heagerty, 21 Minn. 42 (1874).
2
  Wackerbarth v. Weisman, 207 Minn. 507, 292 N.W. 214 (1940); Puget Sound Nat’l
Bank of Everett v. Mather, 60 Minn. 362, 62 N.W. 396 (1895).
3
  Banning v. Sibley, 3 Minn. 389 (1859).
4
  First Trust Co. of St. Paul v. Matheson, 187 Minn. 468, 246 N.W. 1 (1932).
5
  Nat’l Sur. Co. v. Hurley, 130 Minn. 392, 153 N.W. 740 (1915).

                                           4
conceptually distinct. Therefore, although the district court applied the same analysis

to both websites and domain names, we analyze them separately here.

       We note that the district court did not decide whether the domain name or

website were property “belonging to the debtor” Systematic Rain, as required by

Minn. Stat. § 571.73, subd. 3(2), (3). The district court did not have the benefit of a

fully developed record as to ownership at the hearing, nor did the court make specific

findings as to ownership in its order. The court treated the question of ownership as

the second of two steps of its garnishment analysis, to be determined only after the

court determined whether a domain name and website could be garnished. As a result,

the court only considered the issue of “whether or not the domain name

‘GPLAWN.com’ and the related website are property that is subject to garnishment.”

Accordingly, we review here only the court’s conclusion that domain names and

websites are not property subject to garnishment under Minn. Stat. § 571.73, subd.

3(2), (3). It is left to the district court to make findings as to ownership of the domain

name and website.

                                            I.

       Sprinkler argues that the district court erred by determining that domain names

are not subject to garnishment under Minn. Stat. § 571.73, subd. 3. The following

sections discuss the nature and function of domain names, whether domain names

constitute property, and the application of Minn. Stat. § 571.73, subd. 3 to domain

names.

                                            5
       A.     Domain Names

       A domain name is part of the alphanumeric address used to reach a website.

The full address used to reach a website is its uniform resource locator (URL). Steven

Blackerby, Flat Broke and Busted, but Can I Keep My Domain Name? Domain Name

Property Interests in the First, Fifth, and Eleventh Circuits, 11 J. Intell. Prop. L. 117,

121 (Fall 2003). A URL is made up of (1) a scheme or transfer protocol (usually

“http://”) and (2) a domain name. Id. The “top level” domain is the last part of the

domain name, such as .com, .gov, .edu, .org, or .net. Id. at 122. The “second level”

domain precedes the top level domain in the address, and is the individual identifier

for each website. Id. at 121-22.

       Each domain name corresponds to a specific numeric address called the

“Internet protocol (IP) address.” Id. at 121. IP addresses contain the true information

that networked computers use to locate specific websites, because each IP address

corresponds to a specific server storing the information that will be displayed on the

website. Id. The additional step of using domain names is for the convenience of

users, for whom names and words are more memorable and meaningful than numeric

IP addresses. Lockheed Martin Corp. v. Network Solutions, Inc., 985 F. Supp. 949,

952 (C.D. Cal. 1997).

       Second-level domain names are unique and exclusionary, in that only one entity

can register and use a specific second-level domain name at any given time.

Blackerby, supra, at 122. Additionally, most domain names are available on a first-

come, first-served basis. Internet Corporation for Assigned Names and Numbers,

                                            6
Beginner’s Guide to Domain Names 3-4 (2010). These attributes of domain names

have led to a lucrative market in buying and selling the rights to use “certain generic or

clever domain names that do not violate a trademark or other right or interest, but are

otherwise extremely valuable to Internet entrepreneurs.” Dorer v. Arel, 60 F. Supp. 2d

558, 561 (E.D. Va. 1999).

       Domain names must be registered for a period of years with accredited

registrars. Beginner’s Guide, supra, at 3-4. The domain name registration process

involves a contract between the registrar and the registering individual or business. Id.

at 6. This contract “sets forth the terms under which [the] registration is accepted and

will be maintained.” Id. Registrants pay for domain name registration services which

include, at a minimum, ensuring that a particular domain name is available and linking

the registered domain name to its IP-numbered server. Blackerby, supra, at 125-26.

In return, the registrant obtains the exclusive right to use the domain name for the

registration term. Beginner’s Guide, supra, at 7. It is possible, however, to change the

name on the registration record. Id. at 12. Some registrars charge for this process, and

the new registrant must establish an account with the registrar. Id.

       The right to use a specific domain name may end involuntarily. Registrants are

contractually bound by certain obligations, a violation of which may result in

termination of the domain name registration.         Id. at 8-9.    Also, domain name

registrations are not automatically renewed at the end of a registration period (although

some registrars offer an automatic renewal service). Id. at 9. On the other hand, a

registrant retains the exclusive use of that domain name as long as the registrant

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chooses to renew the registration. Id. A registrant may even transfer registration of a

domain name to a different registrar at the time of renewal, without losing the

continuous and exclusive right to use the same domain name. Id.

      B.     Do Domain Names Constitute Property?

      Based on the above description of domain names, we conclude that domain

names do constitute property. In an unpublished decision, this court has previously

considered a company’s domain name to be an “asset[] with measurable value.”

Schwartz v. Virtucom, Inc., No. A08-1059, 2009 WL 1311816, at *4 (Minn. App. May

12, 2009). Other jurisdictions discussing the question of whether domain names are

property have either concluded that they are property, or have declined to dispute the

characterization of domain names as property.6 Kremen v. Cohen, 337 F.3d 1024 (9th

Cir. 2003), which discusses this question thoroughly, held that a domain name is

property for the purposes of protection from conversion, because domain names are

well-defined interests, the rights to use domain names (as opposed to the domain

names themselves) are valued, bought, and sold, and domain name registrants “have a

legitimate claim to exclusivity.” Id. at 1029-30. Additionally, some domain names

may constitute intellectual property, as visitors to the website begin to associate the

domain name with the entity whose website is connected to that domain name. Dorer,

6
  See Office Depot, Inc. v. Zuccarini, 596 F.3d 696, 702 (9th Cir. 2010) (holding that
domain names are intangible property under California law); Network Solutions, Inc. v.
Umbro Int’l, Inc., 529 S.E.2d 80, 86 (Va. 2000) (declining to dispute the
characterization as a property right, but concluding that its character as property was
not dispositive of whether it could be garnished); In re Larry Koenig & Assoc. LLC,
No. 01-12829, 2004 WL 3244582, at *6 (Bankr. M.D. La. Mar. 31, 2004) (discussing
the value of domain names).

                                          8
60 F. Supp. 2d at 561. Domain names may also be registered trademarks and as such

are treated as property under the U.S. Anticybersquatting Consumer Protection Act, 15

U.S.C. § 1125. Each of these authorities supports our conclusion that domain names

are property.

       C.       Application of Minn. Stat. § 571.73

       However, whether a domain name is “property” is not dispositive of whether

domain names are property subject to garnishment under Minn. Stat. § 571.73. In our

interpretation and construction of statutes, we attempt to “ascertain and effectuate the

intention of the legislature.”      Minn. Stat. § 645.16 (2014).        The threshold

determination in discerning the intent of the legislature is whether the statutory

language is ambiguous. Brua v. Minn. Joint Underwriting Ass’n, 778 N.W.2d 294,

300 (Minn. 2010). When the statutory language is unambiguous, further construction

of the statute is neither necessary nor permitted. State v. Jesmer, 293 Minn. 442, 442,

196 N.W.2d 924, 924 (1972).

       The words of the garnishment statute are clear and unambiguous. Minn. Stat.

§ 571.73, subd. 3 states that property subject to garnishment includes “all” nonexempt

property, whether intangible or tangible, of “any kind.” Such wording indicates that

the legislature intended the category of property subject to garnishment to be as broad

and inclusive as possible. We surmise that the legislature intended this broad language

to encompass any valuable real or intangible property, even types of property that were

yet to be developed. There is no ambiguity in the phrase “all property” to warrant

further statutory construction.

                                           9
       The Ninth Circuit followed a similar approach to statutory interpretation in

Zuccarini. Zuccarini considered whether California law allowed the garnishment of

190 of the judgment debtor’s 248 registered domain names.            596 F.3d at 698.

Similarly to Minn. Stat. § 571.73, subd. 3, the California statute governing

garnishment allows garnishment of “all property of the judgment debtor.” Cal. Civ.

Proc. Code § 695.010 (West 2014) (emphasis added). After concluding that domain

names are property, the Zuccarini court concluded that domain names are subject to

garnishment under the clear language of the garnishment statute. Zuccarini, 596 F.3d

at 702. Likewise, we hold that domain names are subject to garnishment under Minn.

Stat. § 571.73, subd. 3.

       In the district court’s decision not to allow garnishment of domain names, the

district court relied upon Umbro which held that domain names are not subject to

garnishment under Virginia law. 529 S.E.2d at 88. The Umbro court held that domain

name registration creates a contract for services, but did not decide the question of

whether a domain name is also property. Id. at 86 (stating that it was not “essential to

the outcome of this case to decide whether the circuit court correctly characterized a

domain name” as property). Rather than analyzing whether the Virginia garnishment

statute was ambiguous in its application to domain names, Umbro concluded that

domain names could not be garnished because contracts for services were not subject

to garnishment under Virginia law. Id. In contrast to the Umbro court, we hold here

that a domain name is a form of property and we conclude that, despite the fact that a

domain name may be categorized both as property and as a contract for services, a

                                          10
domain name nevertheless qualifies as property subject to garnishment under Minn.

Stat. § 571.73.

                                           II.

       Sprinkler also argues that the district court erred by determining that websites

are not subject to garnishment under Minn. Stat. § 571.73. The following sections

discuss the nature and definition of a website, whether and to what extent a website

constitutes property, and the application of Minn. Stat. § 571.73 to websites.

       A.     Websites

       A website is “a set of interconnected webpages, prepared and maintained as a

collection of information.”     State v. Kirby, 141 P.3d 838, 840 (N.M. 2007).

Structurally, a website consists of content and software to assemble that content.7

Warren Agin, Bankruptcy and Secured Lending in Cyberspace § 1:14 (2014). Each

webpage displayed as part of a website is made up of a source document and the

multimedia content to be displayed on the webpage. Preston Gralla, How the Internet

Works 137, 151 (8th ed. 2007). The source document employs hypertext markup

language (HTML), or some other markup language, to instruct the Internet browser

how to retrieve, format, and display multimedia content. Id. This multimedia content

is stored in separate files from the source document. Id. The markup language in the

source document references these separate multimedia files and renders the content

7
  A website does not include the customer information collected from a website’s
interactive features. Such customer lists are a separate asset of the business, distinct
from the website itself. The question of whether customer lists may be garnished
under Minn. Stat. § 571.73 is not before this court.

                                           11
onto the webpage. Id. The markup language also incorporates “scripts” into the

source document. Elizabeth Castro, HTML for the World Wide Web 291 (4th ed.

2000). Scripts are small software programs that operate the interactive elements on

websites, including online-purchasing functions, a shopping-cart function, site-

searching functions, blog and comment functions, translation and calculation

functions, and various forms that allow website visitors to leave contact information,

make referrals, or sign up for communications. Id.

      B.     Do Websites Constitute Property?

      The elements that make up a website—the source documents, multimedia

content, and the scripts that operate interactive website features—constitute property

to the extent that they are copyright-protected material. Copyright protection applies

to “original works of authorship fixed in any tangible medium of expression” and

arises as of the moment the author affixes his or her work to the medium of

expression. 17 U.S.C. § 102. Online publication is a “tangible medium” for purposes

of copyright protection. U.S. Copyright Office, Circular 66: Copyright Registration

for Online Works 1 (2012).       “For works transmitted online, the copyrightable

authorship may consist of text, artwork, music, audiovisual material (including any

sounds), sound recordings, etc.” Id. Thus, websites often consist of a collection of

copyright-protected material.

      A website itself may also be copyright protected, if the website’s arrangement

constitutes an original work of authorship. “Copyright protection for a website may

extend to both the screen displays and the computer code for the website.” Integrative

                                         12
Nutrition, Inc. v. Acad. of Healing Nutrition, 476 F. Supp. 2d 291, 296 (S.D.N.Y.

2007). The U.S. Copyright Office may, however, choose to deny an application to

copyright an entire website if, viewing the website as a whole, the elements “lack[]

even a minimal degree of creativity.” Darden v. Peters, 402 F. Supp. 2d 638, 643

(E.D.N.C. 2005), aff’d, 488 F.3d 277 (4th Cir. 2007). Any material that has been

previously registered, has been previously published, or is in the public domain cannot

be copyrighted. Copyright Registration for Online Works, supra, at 1.

       Copyrights have the attributes of personal property, including the owner’s

“right to exclude others from using his property.” eBay Inc. v. MercExchange, L.L.C.,

547 U.S. 388, 392, 126 S. Ct. 1837, 1840 (2006) (quotations omitted). The copyright

in a work initially vests ownership of the work in the author. U.S. Copyright Office,

Circular 1: Copyright Basics 2 (2012). For a website, the owner is either the person or

group that actually designed the website, or the hiring party, where an outside party

has been hired to design the website. Rinaldo Del Gallo, III, Who Owns the Web

Site?: The Ultimate Question When a Hiring Party Has a Falling-Out with the Web

Site Designer, 16 J. Marshall J. Computer & Info. L. 857, 870 (1998). Copyrights are

alienable and may be transferred “in whole or in part by any means of conveyance or

by operation of law.” 17 U.S.C. § 201(d)(1). We conclude that any unique, copyright-

protected portions of a website constitute property.

       It is important to note that not all parts of a website are necessarily property of

the website owner. Some portions of the website may not be unique enough to merit

copyright protection, and are merely in the public domain. Darden, 402 F. Supp. 2d at

                                           13
643. Also, some portions of a website may actually belong to a third party and may

merely be licensed to the website owner for use on the website. Scott W. Pink, The

Internet & E-Commerce Legal Handbook 137 (2001). Only the copyright-protected

portions of a website that belong to the judgment debtor can be considered the

judgment debtor’s property for the purpose of Minn. Stat. § 571.73.

       C.     Application of Minn. Stat. § 571.73

       The Supreme Court case Ager v. Murray is generally cited for the proposition

that intellectual property, including patents and copyrights, is “subjected by suitable

judicial proceedings to the payments of [the judgment debtor’s] debts.” 105 U.S. 126,

128 (1881). Ager also provides that the appropriate method for a judgment creditor to

obtain intellectual property is for the trial court to compel the judgment debtor to make

a written assignment of the copyright or patent to a receiver to sell it, the proceeds to

be applied against the judgment. Id. at 131; see also Stephens v. Cady, 55 U.S. 528,

531 (1852) (approving of the court compelling the transfer and sale of a copyright in

order to apply the proceeds to the payment of a judgment debt).

       Even if federal law authorizes the sale of intellectual property to satisfy debts,

the issue before this court is whether Minnesota law includes copyrights as property

subject to garnishment. No published cases in Minnesota have considered whether

websites specifically, or copyright-protected materials generally, are subject to

garnishment under Minn. Stat. § 571.73. One Minnesota case, P.H. & F.M. Roots Co.

v. Decker, indicates that intellectual property may be sold and applied against

judgment debts. 111 Minn. 458, 461-62, 127 N.W. 417, 418-19 (1910) (stating in a

                                           14
creditor’s bill suit that a court can deprive an individual of patent rights for the purpose

of satisfying a judgment debt, but only if the court has personal jurisdiction over the

patent-holder).

       As with domain names, the wording of Minn. Stat. § 571.73, subd. 3 indicates

that the legislature intended Minn. Stat. § 571.73, subd. 3 to include copyright-

protected material. The statute unambiguously applies to “all property.” Because we

conclude that the copyright-protected material that comprises a website constitutes

property, we hold that such material is subject to garnishment under Minn. Stat.

§ 571.73, subd. 3.

                                            III.

       We also address here the appropriate procedure through which a domain name

and the copyright-protected portions of a website may be garnished. The purpose of

the garnishment statute is to allow judgment creditors to recover money in satisfaction

of the judgment debt. See Minn. Stat. § 571.73. The procedure to garnish a domain

name and website should promote that purpose. The creditor, Sprinkler, originally

requested that the district court order Palm, the garnishee, to assign the domain name

and website to Sprinkler, but Sprinkler did not indicate how or when it would apply

the value of the domain name and website against Systematic Rain’s judgment debt.

Like the district court, we are concerned that such an arrangement would create the

potential for judgment creditors to misuse the garnishment statute.

       A more appropriate method for a judgment creditor to reach the value of a

website and domain name is for the court to compel the garnishee to transfer the

                                            15
website and domain name to a receiver for sale. Ager holds that intellectual property

cannot be reached by execution, and prescribes transfer to and sale by a receiver as the

appropriate method for a judgment creditor to reach the value of intellectual property.

105 U.S. at 131. Minnesota precedent approves of this method for a creditor to reach

the value of a debtor’s intellectual property. See Decker, 111 Minn. at 461-62, 127

N.W. at 418-19 (citing in part to Ager to conclude that a court could order the

judgment debtor to transfer a patent right, if the court had personal jurisdiction over

the judgment debtor). The sale by a receiver allows the value of the website and

domain name to be applied against the judgment debt, while eliminating the

temptation for judgment creditors to misuse the garnishment statute. We hold that a

judgment creditor may reach the value of a domain name and of copyright-protected

property in a website by requesting that the district court appoint a receiver and

compel the garnishee to transfer ownership of the property to the receiver for sale.

The receiver shall sell the website as a whole, subject to any nontransferable licenses,

for its intellectual-property value.

                                          IV.

       Before the website and domain name can be transferred, several factual

determinations remain to be made regarding the ownership and control of the website

and domain name. In its memorandum in support of the order, the district court

specifically stated that “[t]he sole issue is whether or not the domain name

‘GPLAWN.com’ and the related website constitute property that is subject to

garnishment.” The district court never decided (1) whether Systematic Rain was the

                                          16
owner of the property at issue, (2) whether Palm was the proper garnishee by virtue of

his possession or control of the website and domain name, or (3) whether Systematic

Rain had made any fraudulent transfers of the website and domain name. Each of

these findings is a necessary prerequisite to garnishment under Minn. Stat. § 571.73.

        A final determination that must be made on remand is whether there are

portions of the website that cannot be garnished. A website may include licensed

property that belongs to third parties rather than to the judgment debtor. The district

court should review such licenses to determine whether they can be transferred,

assigned, or sold along with the website. This factual determination should expedite

the application of the proceeds to the judgment debt by clarifying which parts of the

website will not be included in the sale of the website.

        The district court should allow for development of the record and hold a

hearing regarding the factual determinations described above. If the district court

finds that Palm is the proper garnishee of the website and domain name owned by

Systematic Rain, the district court shall direct Palm to transfer the domain name and

the website to a receiver for sale and application against Systematic Rain’s judgment

debt.

                                    DECISION

        Minn. Stat. § 571.73, subd. 3 is unambiguous and applies to all property. Both

domain names and the copyright-protected material in websites constitute property.

Therefore, domain names and websites are subject to garnishment under Minn. Stat.

§ 571.73, subd. 3.    Sprinkler may garnish the domain name and any copyright-

                                           17
protected portions of the website that are owned by Systematic Rain. We reverse and

remand.

      Reversed and remanded.

                                        18