Can a Creditor Seize a Debtor's Domain Name?

How does a creditor take a debtor’s domain name in Minnesota?

After judgment, a creditor serves a garnishment summons on the person who controls the domain name, then asks the district court to appoint a receiver and order the domain transferred to the receiver for sale. The garnishment holds the domain in place; the sale turns it into money for the judgment.

The garnishment can issue under Minn. Stat. § 571.71 “at any time after entry of a money judgment in the civil action.” Service attaches, under Minn. Stat. § 571.73, subd. 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.” In Sprinkler Warehouse, Inc. v. Systematic Rain, Inc., 880 N.W.2d 16 (Minn. 2016), the Minnesota Supreme Court applied that clause to a domain name and affirmed the Court of Appeals.

The Court of Appeals, in Sprinkler Warehouse, Inc. v. Systematic Rain, Inc., 859 N.W.2d 527 (Minn. App. 2015), set the second step: “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 Supreme Court granted review only on whether a domain name is attachable, so that procedure stands. The full reasoning of the earlier decision is on my page walking through the Court of Appeals opinion and its reasoning.

What makes a domain name property a garnishment can reach?

A domain name is intangible personal property under Minnesota’s garnishment statute. The Minnesota Supreme Court held: “We conclude that a domain name is intangible personal property within the meaning of Minn.Stat. § 571.73, subd. 3(3) and is therefore subject to attachment by garnishment.”

The court rejected the debtor’s argument that a domain name is only a contract for services with a registrar. It reasoned that “A domain name registrant enjoys the right to possess, control, and use the domain name, as well as dispose of it as he or she would with other types of property.” A domain can be sold, transferred, and kept from others, which are the marks of property, and the statute reaches “all other” intangible personal property that is not exempt.

Two limits come from the statute itself. The attachment is “Subject to the exemptions provided by sections 550.37 and 571.922 and any other applicable statute,” and Minn. Stat. § 571.73, subd. 4 excludes “any disposable earnings, indebtedness, money, or property that is exempt under Minnesota or federal law.” In Sprinkler, the court found that neither exemption statute applied to the debtor company’s domain name. A debtor who believes an exemption applies raises it through the statutory exemption notice process.

Who should a creditor serve with the garnishment summons?

Serve the person who has possession or control of the domain name, because a garnishment attaches only property “in the possession or under the control of the garnishee.” The Minnesota Supreme Court declined to reach the district court’s doubt “as to whether Sprinkler served the correct party to garnish the domain name on the ground that Palm did not own, possess, or control the domain name,” so the choice deserves care.

In Sprinkler, the creditor served the debtor company’s chief executive, who was the domain’s registrant, and he disclosed that he held none of the company’s property. The Supreme Court declined to decide whether he was the correct garnishee: “Because this issue was not argued or raised below, it is not necessary for us to reach it, and we decline to do so.” The Court of Appeals listed what the district court still had to find: “The district court never decided (1) whether Systematic Rain was the 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.”

The garnishee’s answer carries weight. Under Minn. Stat. § 571.79, when a garnishee discloses that it “does not possess any money or other property belonging to the debtor that is attachable,” the disclosure “is conclusive against the creditor.” Paragraph (h) of that section keeps the garnishee from being discharged only if an interested person serves one of the motions that paragraph describes within its statutory period “and the court upon proper showing vacates the discharge of the garnishee.” A creditor that expects a denial should serve written interrogatories with the summons, which Minn. Stat. § 571.72, subd. 5 allows, and use the nonearnings disclosure, which the garnishee must serve within the time § 571.75 sets, with its required description of property “belonging to the judgment debtor or in which the debtor is interested” under Minn. Stat. § 571.75, subd. 2. If the registrant denies holding the debtor’s property, Minn. Stat. § 571.75, subd. 4 provides that “the creditor may move the court at any time before the garnishee is discharged, on notice to both the debtor and the garnishee for an order making the garnishee a party to the civil action and granting the creditor leave to file a supplemental complaint against the garnishee and the debtor,” and the same subdivision reaches property held “by a title that is void as to the debtor’s creditors.” In supplementary proceedings, which Minn. Stat. § 575.02 opens after an execution “is returned unsatisfied, in whole or in part,” Minn. Stat. § 575.06 provides that an adverse interest “may be recovered only in an action against such person by the receiver.” Before serving anyone, a creditor should pull the registration record and the debtor’s own invoices from its registrar; learning the debtor’s assets through discovery can surface that record.

How does the receiver sale of a domain name work?

The court appoints a receiver, orders the garnishee to transfer the domain to the receiver, and the receiver sells it and applies the proceeds to the judgment. The Court of Appeals chose this route over a transfer straight to the creditor, stating: “Like the district court, we are concerned that such an arrangement would create the potential for judgment creditors to misuse the garnishment statute.”

Minnesota’s receivership chapter supplies the authority and the steps. Under Minn. Stat. § 576.25, subd. 3, “A limited or general receiver may be appointed in a judgment or after judgment to carry the judgment into effect, to preserve property pending an appeal, or when an execution has been returned unsatisfied and the judgment debtor refuses to apply the property in satisfaction of the judgment.” Subdivision 7 requires “a motion with notice to the respondent, to all other parties in the action, and to parties in interest,” and allows a temporary appointment without notice only “if it is clearly shown that an emergency exists requiring the immediate appointment of a receiver.” Subdivision 8 requires the order to “describe the receivership property with particularity appropriate to the circumstances,” so the motion should name the domain, its registrar, and any related accounts.

Supplementary proceedings offer the same tool. Minn. Stat. § 575.05 provides that “The judge may appoint a receiver of the debtor’s unexempt property, or forbid a transfer or other disposition thereof, or any interference therewith, until further order therein.” The receiver sells only what the debtor owns: the Court of Appeals noted that “A website may include licensed property that belongs to third parties rather than to the judgment debtor,” and directed the district court to sort that out before the sale.

What steps keep a domain name garnishment from failing?

A domain garnishment can fail on procedure even when the domain is reachable. The creditor should pay the garnishee fee, serve the garnishee properly, mail the debtor’s copy, and track when the garnishee’s hold lapses.

1. Pay the fee at service. Under Minn. Stat. § 571.76, “A garnishee shall be paid a $15 fee by the creditor at the time of service of a garnishment summons. Failure to pay the fee renders the garnishment void, and the garnishee shall take no action.”
2. Serve the garnishee correctly. Minn. Stat. § 571.72, subd. 2 allows service “in the same manner as other summons in that court of record, except that service may not be made by publication,” and adds that service “may also be made by certified mail, return receipt requested. A garnishment summons served by certified mail is effective if served at the garnishee’s regular place of business. The effective date of service by certified mail is the time of receipt by the garnishee.”
3. Mail the debtor’s copy. Subdivision 4 of the same section provides that copies of everything served on the garnishee “must be served by mail at the last known mailing address of the debtor” within the period that subdivision sets. Where the debtor is a natural person, such as a sole proprietor who registered the domain in their own name, Minn. Stat. § 571.72, subd. 8 provides that “the debtor shall be provided with a garnishment exemption notice,” and for property other than earnings or bank funds, “the exemption notice must be in the following form and served on the debtor with a copy of the garnishment summons.”
4. Track when the hold ends. Service obligates the garnishee “to retain possession and control” of the attached property under Minn. Stat. § 571.73, subd. 1, and the summons must tell the garnishee, under Minn. Stat. § 571.72, subd. 2, to retain it “until the creditor causes a writ of execution to be served upon the garnishee, until the debtor authorizes release to the creditor, until the creditor authorizes release to the debtor, upon court order, or by operation of law.” For a summons served after judgment, Minn. Stat. § 571.79 provides that “180 days after the garnishment summons is served the garnishee is discharged and the garnishee shall return any disposable earnings, other indebtedness, money, and property to the debtor.” Check the current text of § 571.79 before calendaring the discharge date.
5. Stop if the debtor files bankruptcy. Under 11 U.S.C. § 362(a), a petition stays “the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case.”

Why does a lender’s earlier lien matter to the domain sale?

A garnishment gives the creditor a lien on the domain, but that lien ranks behind any security interest perfected earlier. If the debtor’s bank already holds a perfected security interest that covers the domain, the garnishing creditor’s lien ranks behind the bank’s.

Minn. Stat. § 571.81, subd. 1 provides that from service of the summons, “the creditor has a perfected lien upon all disposable earnings, indebtedness, money, or other property of the debtor that is attached by garnishment pursuant to section 571.73, subdivision 3.” Subdivision 2 sets the ranking: “a perfected lien by garnishment is subordinate to a preexisting voluntary or involuntary transfer, setoff, security interest, lien, or other encumbrance that is perfected, but a lien perfected by garnishment is superior to such interests subsequently perfected.”

The practical step is a search for financing statements filed against the debtor before spending money on a receiver. A creditor should weigh the domain’s likely sale price against any senior lender’s balance, because the senior lien ranks first.

When does a registrar outside Minnesota change the plan?

A Minnesota garnishment reaches property in the possession or control of the person served, so a creditor whose only target is an out-of-state registrar or registry may need to enforce the judgment where that company sits. Minnesota’s appellate decisions in Sprinkler did not address where a domain name is located for that purpose.

One federal appeals court has. In Office Depot Inc. v. Zuccarini, 596 F.3d 696 (9th Cir. 2010), applying California law, the Ninth Circuit held: “we conclude under California law that domain names are located where the registry is located for the purpose of asserting quasi in rem jurisdiction.” It added that “Action by a registrar is needed to transfer ownership of a domain name from one registrant to another,” and affirmed a receiver appointed in the district where the .com registry had its headquarters. That reasoning is persuasive only; it is not Minnesota law.

The judgment can travel. A federal judgment “may be registered by filing a certified copy of the judgment in any other district” under 28 U.S.C. § 1963 “when the judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown,” and a registered judgment “shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner.” Under Fed. R. Civ. P. 69(a), a federal court follows the enforcement procedure of the state where it sits. Going the other direction, a judgment from another state or a federal court comes into Minnesota through Minn. Stat. § 548.27: “A certified copy of any foreign judgment may be filed in the office of the court administrator of any district court of this state.” The court administrator then treats it “in the same manner as a judgment of any district court or the supreme court of this state.” Under Minn. Stat. § 548.28, the judgment creditor or the creditor’s lawyer “shall make and file with the court administrator an affidavit setting forth the name and last known post office address of the judgment debtor, and the judgment creditor,” and “No execution or other process for enforcement of a foreign judgment filed hereunder shall issue until 20 days after the date the judgment is filed.” Check the current text of § 548.28 before calendaring the first execution. Sprinkler itself began that way, with a California federal judgment docketed in Scott County. My page on enforcing a judgment from another state covers the filing.

How can a creditor recover a domain the debtor moved to an insider?

A domain the debtor transferred to an owner, relative, or new company to keep it from creditors can be pulled back as a voidable transfer, and the court can freeze it while that claim proceeds. The Court of Appeals in Sprinkler listed “whether Systematic Rain had made any fraudulent transfers of the website and domain name” among the findings needed before a garnishment can be completed.

Minnesota’s voidable-transactions statute, Minn. Stat. § 513.44, makes a transfer voidable as to a creditor if the debtor made it “with actual intent to hinder, delay, or defraud any creditor of the debtor.” Among the factors a court may consider in determining actual intent are whether “the transfer or obligation was to an insider,” whether “the debtor retained possession or control of the property transferred after the transfer,” and whether, before the transfer, “the debtor had been sued or threatened with suit.” A domain that moved to the owner’s personal registrar account after the lawsuit was filed, and still points to the same business, fits several of those factors. My page on fraudulent transfer claims covers the remedies.

Two tools protect the domain in the meantime. In supplementary proceedings, which Minn. Stat. § 575.02 opens after an execution “is returned unsatisfied, in whole or in part,” Minn. Stat. § 575.05 lets the judge “forbid a transfer or other disposition” of the debtor’s property. Before judgment, Minn. Stat. § 571.93, subd. 1 lets the court order a garnishment summons where “the debtor has assigned, secreted, or disposed of, or is about to assign, secrete, or dispose of, any of the debtor’s nonexempt property, with intent to delay or defraud any of debtor’s creditors.” Subdivision 2 of that section requires that “the requirements of section 571.931 must be met” for a garnishment before notice and hearing and “the requirements of section 571.932 must be met” for one after, and under Minn. Stat. § 571.932, subd. 6, “Before issuing an order of garnishment, the court shall require the creditor to post a bond in the penal sum of at least $500, conditioned that if judgment be given for the debtor or if the order is vacated, the creditor will pay all costs that may be awarded against the creditor and all damages caused by the garnishment.”

Why is the federal cybersquatting law not a collection tool?

The federal Anticybersquatting Consumer Protection Act (“ACPA”) lets a trademark owner take a domain that infringes its mark, but it gives an ordinary creditor nothing. A creditor collecting an unpaid invoice or a contract judgment uses Minnesota garnishment and a receiver, not the ACPA.

The ACPA’s in rem action under 15 U.S.C. § 1125(d)(2) begins: “The owner of a mark may file an in rem civil action against a domain name in the judicial district in which the domain name registrar, domain name registry, or other domain name authority that registered or assigned the domain name is located.” Its remedies “shall be limited to a court order for the forfeiture or cancellation of the domain name or the transfer of the domain name to the owner of the mark.” No money changes hands and no judgment is paid. The ACPA’s place in a collection case is narrower: the Zuccarini judgment arose under the ACPA, but the assignee pursued the debtor’s other domains through a receiver under California procedure.

A domain name can be the most valuable thing an online business owns, and Minnesota law lets a judgment creditor reach it: garnish it from the person who controls it, then have a court-appointed receiver sell it. The work is in the details: serving the right garnishee, paying the fee, tracking when the hold lapses, checking for a senior lender, and enforcing where the registrar sits when the debtor’s own control is in doubt. A creditor whose judgment runs against an owner rather than the company may need a charging order instead. If you would like a second set of eyes on a judgment and the debtor’s domain, email Aaron Hall at [email protected] with a brief description and a copy of the judgment. More on enforcing judgments is on my collections page.