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United States District Court, Northern District of California

May 30, 2000


The opinion of the court was delivered by: Ware, United States District Judge




Defendant Network Solutions, Inc., ("NSI") filed a motion for summary judgment and noticed it for hearing on January 24, 2000. In response, Plaintiff Gary Kremen filed a motion pursuant to Federal Rule of Civil Procedure 56(f). The Court granted the Rule 56(f) motion in part, permitting Plaintiff to conduct further discovery and allowing the parties to submit supplemental briefing. Based upon all papers filed to date and the oral argument of counsel, the Court grants Defendant's motion for summary judgment.


Plaintiff Gary Kremen registered the domain name with NSI on May 9, 1994. Plaintiff identified Online Classified, Inc. ("Online Classified") as the registering organization.*fn1 Plaintiff never constructed a Web site or otherwise commercially exploited the domain name. In a letter dated October 15, 1995, Sharon Dimmick, purportedly on behalf of Online Classified, informed Defendant Stephen Cohen that Online Classified had "decided to abandon the domain name" and requested that Mr. Cohen "notify the internet registration on our behalf, to delete [their] domain name" Graves Decl.Ex. C. It further stated that "we have no objection to your use of the domain name and this letter shall serve as our authorization to the internet registration to transfer to your corporation." Id. The letter was on Online Classified letterhead and was signed by Ms. Dimmick, who represented herself as the President of the company. Shortly thereafter, Mr. Cohen registered in the name of a company he operated.

Plaintiff contends that the October 15, 1995 letter is a forgery by Mr. Cohen. On October 16, 1998, Plaintiff filed suit against numerous defendants, including NSI, for its deletion of the domain name. Plaintiff alleges the following causes of action against NSI: (1) breach of contract, (2) breach of intended third-party beneficiary contract, (3) breach of fiduciary duty, (4) negligent misrepresentation, (5) conspiracy to convert property and (6) conversion of bailee. NSI now moves for summary judgment as to all claims against it.


Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c).

The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If he meets this burden, the moving party is then entitled to judgment as a matter of law when the non-moving party fails to make a sufficient showing on an essential element of his case with respect to that which he bears the burden of proof at trial. See id. at 322-23, 106 S.Ct. 2548. To defeat summary judgment, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The facts brought forth must be material, i.e., "facts that might affect the outcome of the suit under the governing law. . . . Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

It is the court's responsibility "to determine whether the `specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 631 (9th Cir. 1987). "[S]ummary judgment will not lie if the dispute about a material fact is `genuine,' that is if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). However, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).


A. Breach of Contract

A party must prove the following to establish a claim for breach of contract: the existence and terms of the contract, plaintiffs performance, defendant's breach, and damages. See Student Loan Marketing Ass'n v. Hanes, 181 F.R.D. 629, 633 (S.D.Cal. 1998). The essential elements required to demonstrate the existence of a contract are: "(1) parties capable of contracting, (2) their consent, (3) a lawful object, and (4) a sufficient cause or consideration." Cal.Civ.Code § 1550. "Consideration is a benefit conferred or agreed to be conferred upon the promisor or prejudice suffered or agreed to be suffered `as an inducement' to the promisor." Conservatorship of O'Connor, 48 Cal.App.4th 1076, 56 Cal.Rptr.2d 386 (1996); see also Cal.Civ.Code § 1605.

Plaintiff contends NSI breached the contract governing Kremen's registration of the domain name Plaintiff registered the domain name on May 4, 1994. In 1994, the registration process involved completing a short administrative template which was then submitted to NSI via e-mail. See Graves Decl. ¶ 20. At that time, NSI received no registration fee or other form of payment from registrants in exchange for the service. See id. at ¶ 5. Thus, the registration form is not supported by consideration because there was no benefit conferred or agreed to be conferred upon NSI. See Oppedahl & Larson v. Network Solutions, Inc., 3 F. Supp.2d 1147, 1160 (D.Colo. 1998) (holding that the registration forms used in 1994 by NSI lacked consideration). Accordingly, Plaintiffs motion for summary judgment as to the breach of contract claim is granted because Plaintiff has failed to demonstrate an essential element of the claim — the existence of a contract.

B. Breach of Intended Third-Party Beneficiary Contract

NSI became the registrar of domain names pursuant to a Cooperative Agreement with the United States Government. See 31 U.S.C. § 6305. National Science Foundation ("NSF") administered the agreement on behalf of the federal government. Plaintiff contends that domain registrants are third-party beneficiaries of the government's contract with NSI. Thus, NSI's failure to comply with certain obligations under the agreement constitutes breach of a third-party beneficiary contract.

Interpretation of the Cooperative Agreement is governed by federal law because the "contract was entered into pursuant to authority conferred by federal statute." United States v. Seckinger, 397 U.S. 203, 209-210, 90 S.Ct. 880, 25 L.Ed.2d 224 (1970). In determining whether a party is a third-party beneficiary, Ninth Circuit law provides as follows:

To sue as a third-party beneficiary of a contract, the third party must show that the contract reflects the express or implied intention of the parties to the contract to benefit the third party. See Montana v. United States, 124 F.3d 1269, 1273 (Fed.Cir. 1997). The intended beneficiary need not be specifically or individually identified in the contract, but must fall within a class clearly intended by the parties to benefit from the contract. See id.

Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1211 (9th Cir. 1999). Moreover, "[p]arties that benefit from a government contract are generally assumed to be incidental beneficiaries, and may not enforce the contract absent a clear intent to the contrary." Id. (citing Restatement (Second) of Contracts § 313(2) (1979)).

Plaintiff points to Article 6, titled "Responsibilities," as reflective of NSI and the NSF's intent to benefit domain name registrants. Article 6 contains numerous provisions outlining the respective duties of NSI and the NSF under the contract. However, it contains no language manifesting a clear intent to confer anything but an incidental benefit to domain name registrants. Based upon Plaintiffs failure to adduce any evidence creating an issue of triable fact regarding its status as an intended beneficiary under the Cooperative Agreement, Defendant's motion for summary judgment as to the breach of a third party beneficiary claim is granted. See Oppedahl & Larson v. Network Solutions, Inc., 3 F. Supp.2d 1147, 1159 (D.Colo. 1998) (finding domain name registrant was not a third-party beneficiary of the Cooperative Agreement between NSI and the NSF).

C. Conversion and Conspiracy to Convert Property

The elements of conversion are as follows: (1) the plaintiff has ownership or right to possession of the property at the time of the conversion; (2) the defendant's conversion is by a wrongful act or disposition of property rights; and (3) damages. See Farmers Ins. Exch. v. Zerin, 53 Cal.App.4th 445, 451, 61 Cal.Rptr.2d 707 (1997). Historically, the tort of conversion was confined to tangible property. See 5 Witkin, Summary of California Law, Torts § 613 (9th ed. 1988). However, California law does recognize "conversion of intangibles represented by documents, such as a bonds, notes, bills of exchange, stock certificates, and warehouse receipts." Id. Intangible property such as "goodwill of business, trade secrets, a newspaper route, or a laundry list of customers" are not subject to conversion. Id. In Berger v. Hanlon, 129 F.3d 505, 517 (9th Cir. 1997) (citing Restatement (Second) of Torts, § 242 and comments), the Ninth Circuit noted that "[a]lthough the common law rule has been relaxed somewhat, and the tort may now reach the misappropriation of intangible rights customarily merged in or identified with some document, it has not yet been extended further."

NSI contends that a domain name is a form of intangible property which can not serve as a basis for a conversion claim. The Court concurs. There is simply no evidence establishing that a domain name, including, 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.*fn2

The Court recognizes that the present action invites abandoning the traditional strictures of conversion to encompass forms of intangible property never contemplated in its formation. However, this Court heeds the California Supreme Court's admonitions to exercise restraint in imposing "`[new tort duties] when to do so would involve complex policy decisions,' (citation omitted) especially when such decisions are more appropriately the subject of legislative deliberation and resolution." Moore v. Regents of University of California, 51 Cal.3d 120, 136, 271 Cal.Rptr. 146, 793 P.2d 479 (1990) (citing Foley v. Interactive Data Corp., 47 Cal.3d 654, 694 & fn. 31, 254 Cal.Rptr. 211, 765 P.2d 373 (1988)). In considering the propriety of extending the law of conversion the Court finds numerous issues "more appropriately the subject of legislative deliberation and resolution." Id.

The Court shall limit its discussion to three issues of particular concern. The first concern is the strict liability nature of conversion. See Moore v. Regents of California, 51 Cal.3d 120, 144, 271 Cal.Rptr. 146, 793 P.2d 479 (1990). "The foundation of the action rests neither in the knowledge nor intent of the defendant. . . . Therefore, questions of the defendant's good faith, lack of knowledge, and motive are ordinarily immaterial." Burlesci v. Petersen, 68 Cal.App.4th 1062, 1066, 80 Cal.Rptr.2d 704 (1998). The following example is illustrative of the tort's severity: "where a warehouse man delivers stored household goods to a corporation which appears to have a bona fide claim of ownership, the warehouse man will be liable for conversion if the corporation is eventually unable to establish its title." Gonzales v. Personal Storage, Inc., 56 Cal.App.4th 464, 476, 65 Cal.Rptr.2d 473 (1997). As the warehouse man in the latter scenario, domain registrars such as NSI would be exposed to liability every time a third party fraudulently obtained the transfer of a domain name. The Court finds it inherently unjust to place NSI in this untenable position by virtue of innocently performing a purely ministerial function.*fn3 Furthermore, the threat of litigation threatens to stifle the registration system by requiring further regulations by NSI and potential increases in fees.

Second, the Court is reluctant to construct the proverbial slippery slope. Recognition of a domain name as convertible property would essentially scrap any requirement of tangibility traditionally associated with the tort. It is arguably arbitrary for California law to recognize conversion of intangible property merged with a document, while excluding wholly intangible property. Nevertheless, the Court is compelled to uphold this distinction rather than contort the cause of action to encompass property never contemplated. As stated by Prosser, "it would seem preferable to fashion other remedies . . . to protect people from having intangible values used and appropriated in unfair ways." W. Page Keeton et al., Prosser & Keeton on the Law of Torts § 15, at 92 (5th ed. 1984).

Third, in line with Prosser's recommendation, the Court believes there are methods better suited to regulate the vagaries of domain names. The Court leaves it to the legislature to fashion an appropriate statutory scheme to protect dormant domain names unprotected by trademark law. See 15 U.S.C. § 1125 (d). However, it simply notes the imprudence of superimposing the archaic principles governing the tort of conversion onto the nebulous realm of the Internet.

In sum, the Court grants summary adjudication of both the conversion and conspiracy to convert property causes of action against NSI.

D. Conversion to Bailee

"A bailment . . . is the deposit of personal property with another, usually for a particular purpose, under an express or implied contract." 4 Witkin, Summary of California Law, Personal Property § 129 (9th ed. 1987). A deposit may be voluntary or involuntary. See Cal.Civ.Code § 1813. "A voluntary deposit is made by one giving to another, with his consent, the possession of personal property to keep for the benefit of the former, or of a third party." Cal.Civ.Code § 1814. Plaintiff contends his delivery of to NSI, who in turn accepted care and custody of the domain name, created a bailor/bailee relationship. Plaintiffs characterization of NSI as a bailee misconstrues NSI's function. In Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 985 (9th Cir. 1999) (citation omitted), the Ninth Circuit found that NSI's role is solely to provide a service because its "involvement with the use of domain names does not extend beyond registration." NSI's mere registration of names does not convert its role to that of a bailee. Thus, the Court grants Defendant's motion for summary judgment with respect to the bailment claim.

E. Breach of Fiduciary Duty

"A fiduciary or a confidential relationship exists whenever under the circumstances trust and confidence reasonably may be and is reposed by one person in the integrity and fidelity of another." California Jury Instructions, Civil (8th ed. 1994) No. 12.36. NSI's only function in relation to Mr. Kremen was to register his domain name. As discussed above, the registration process in 1994 only involved completing a short form and forwarding it to NSI. There were no fees associated with the registration process. Thus, the completion of the form did not even create a contractual relationship because it was not supported by any consideration. Based upon the remote nature of the parties' relationship, Mr. Kremen could not reasonably place his trust and confidence in NSI. Accordingly, the Court grants NSI's motion for summary judgment with respect to the breach of fiduciary duty claim.

F. Negligent Misrepresentation

The elements of a negligent misrepresentation are as follows: "(1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages." Fox v. Pollack, 181 Cal.App.3d 954, 962, 226 Cal.Rptr. 532 (1986). To recover on a theory of negligent misrepresentation, "more than an omission is required." Byrum v. Brand, 219 Cal.App.3d 926, 941, 268 Cal.Rptr. 609 (1990).

In his complaint, Plaintiff contends "NSI represented . . . that it would register and hold secure the register of domain names in a manner that would protect the property interests of the registrant. . . ." Third Amended Complaint ¶ 105. Defendant points out that Plaintiff has failed to present any evidence of such misrepresentations. Thus, under the principles of summary judgment, the burden shifts to Plaintiff to adduce evidence in support of his claim. However, Plaintiff fails to even address the cause of action in its opposition. "If no factual showing is made in opposition to a motion for summary judgment, the district court is not required to search the record sua sponte for some genuine issue of material fact. It may rely entirely on the evidence designated by the moving party showing no such triable issue." Schwarzer et al., Federal Civil Procedure Before Trial, ¶ 14:330 (1997) (citing Guarino v. Brookfield Township Trustees, 980 F.2d 399, 403 (6th Cir. 1992)). Based upon the absence of evidence is support of Plaintiffs negligent misrepresentation claim, the Court grants summary judgment of the claim in favor of NSI.


Based upon the foregoing, the Court grants Defendant NSI's motion for summary judgment. However, the Court shall retain jurisdiction over NSI in the interests of resolving the domain name dispute between Plaintiff and the remaining parties.

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