Company that bought a stolen domain name sues Dan.com and John Doe thief.
A publisher is suing Dan.com after it paid $180,000 for a stolen domain name using Dan.com.
Stands4 paid $180,000 last year to acquire Calculator.com. It then spent $50,000 developing it, adding to its portfolio of sites including Grammar.com, Lyrics.com, and Scripts.com. (The current version of the site is pictured above.)
Shortly after publishing a new site on the domain name, Stands4 was sued in Florida court by Chloe Alston, who said she was the rightful owner and had not sold the domain. After looking at the evidence, Stands4 decided not to contest that she was the domain owner and that the person who sold the domain as Chloe was not actually Chloe.
This was the second time a thief tried to sell the domain. A previous attempt on Sedo was scuttled after the buyer questioned who was selling the domain. Surprisingly, after the first time, the domain was not fully locked down and apparently, the thief still had control.
Now, Stands4 is suing (pdf) DAN.com and the John Doe domain thief.
According to the lawsuit, Dan.com has a policy of not listing domains for sale that have active websites. It alleges that the company made an exception after the seller provided a screenshot of the domain in their Network Solutions account.
In its suit, Stands4 points to several representations on Dan.com’s website about its services, as well as emails from Dan.com employees during the transaction.
Stands4 also alleges that Dan.com paid the thief in bitcoin, making it impossible to recover the funds and difficult to identify the thief.
Stands4 is suing Dan.com for fraudulent misrepresentation, negligence, and unjust enrichment. It is asking for not only its original $180,000 back, but treble damages in an additional amount of $360,000, attorneys fees, and punitive damages.
Dan.com provided this statement in response to the lawsuit:
On February 24, 2021, we received a draft complaint from Stands4 LTD which contained a threat that they’d file this frivolous case if we didn’t settle with them. This lawsuit has simply one purpose only and that’s to attempt to shine a negative light on our company. They know that the case will be dismissed by the chosen US court because the company that instructed us (and paid for the domain) is based in Israel and our TOS dictates that in this case, this dispute should be settled in a Dutch courthouse.
On May 27th, 2020, Stands4 LTD in their own complaint indicates to have contacted the domain seller themselves via WHOIS, negotiated a sale price, and then they instructed our company to handle the domain ownership transfer between the two parties. Our team, spent a couple of days researching the domain and requested additional proof of ownership and representation (KYC) before we proceeded with the transaction. Seven days after the initial offer of the buyer; On June 17, 2020, 09:23 we received the payment for the domain and on the same day June 17, 2020, 17:59 we delivered the domain to the buyer. Weeks later, issues started to appear when the domain was locked by Godaddy. Our first reaction was to provide Stands4 LTD with everything we had on file and Godaddy then unlocked the domain for Stands4 LTD after reviewing the transaction documents. The painful irony, in this case, is that all “evidence” that they use in their lawsuit against us, they actually received from us when we were trying to assist them with literally everything we had. This has been the primary reason why we refused to engage in any settlement discussions with them.
Our domain ownership transfer process has proven its mark in the past 8 years. It has helped us handle close to 80,000 successful domain ownership transfers. However, this is an extremely unfortunate edge case.
We’re already working on an industry-wide solution to prevent stolen domains to be traded on marketplaces or distribution networks. It’s an API approach where we maintain a shared database of stolen domains and automatically prevent transactions before they can occur. However, even, when that system is in place, this transaction wouldn’t have been prevented because the “hacker” in question has had access to the domain via a prior hack for months and the domain was never reported as stolen before the lawsuit.
In conclusion: It’s unfortunate that Stands4 LTD makes numerous false and misleading allegations against us. We dispute each and every claim that Stands4 LTD makes, and specifically deny all allegations in the complaint. We’re confident that the facts, in this case, are on our side. And that’s all that counts in the end.
The stolen domain database sounds like a great idea. In this case, I’m not sure that anything was public about prior thwarted attempts to sell Calculator.com. It would be helpful to all marketplaces to share this data.
Joseph Peterson says
Sorry to hear about this episode. Preventing domain theft is a major challenge for any domain marketplace. And I daresay it has become harder to prevent it, based on the effect of GDPR on Whois transparency.
Unfortunately, BTC transactions are a magnet for thieves and bad actors, in my experience. Which is not to say that honest people don’t also use bitcoin for legitimate transactions. In this case, it sounds like 1 BTC transaction involved an honest buyer and a dishonest seller. So that’s illustrative of the mixture. But I, personally, would be very reluctant to accept BTC on a domain marketplace. Its anonymity and irreversibility just bring extra risk and headaches.
John Berryhill says
“…our TOS dictates that in this case, this dispute should be settled in a Dutch courthouse”
First, everyone in the US who uses Dan.com needs to understand that if things go south, you may not have access to US courts to address whatever went wrong.
Secondly, the situation may not be as simple as the statement above suggests. The claims in this lawsuit are not about a violation of the TOS. The principal claim against Dan.com is fraudulent misrepresentation, not breach of contract.
That said, it could come down to an exercise in hair splitting over whether the complaint frames the case as one of fraudulent misrepresentation in order to put a wig and a pair of glasses over a breach of contract claim and to disguise it as something else.
In a very brief glance at some cases, and I would suspect a much more casual glance than Weslow et al. gave this in the course of framing the complaint, one does come across various instances, albeit not in Delaware or the 3rd Circuit which I saw, where courts have enforced forum selection clauses in cases where it seems that the “non-contract claims” were artifices for getting around a forum selection clause.
For example, the Second Circuit, which hears all federal appeals arising from an area which includes the well-developed commercial centers such as New York, held in Roby v. Corp. of Lloyd’s, 996 F.2d 1353, 1360-61 (2d Cir. 1993)”
“It defies reason to suggest that a plaintiff may circumvent forum selection and arbitration clauses merely by stating claims under laws not recognized by the forum selected in the agreement. A plaintiff simply would have to allege violations of his country’s tort law or his country’s statutory law or his country’s property law in order to render nugatory any forum selection clause that implicitly or explicitly required the application of the law of another jurisdiction. We refuse to allow a party’s solemn promise to be defeated by artful pleading.See Coastal Steel Corp. v. Tilghman Wheelabrator Ltd.,709 F.2d 190, 203 (3d Cir.), cert. denied,464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983). In the absence of other considerations, the agreement to submit to arbitration or the jurisdiction of the English courts must be enforced even if that agreement tacitly includes the forfeiture of some claims that could have been brought in a different forum.”
Again, it may be that there is some wrinkle peculiar to Delaware which may come out, but the Complaint seems a bit weak on this point:
“47. In reliance upon the representations from DAN.com, Stands4 did not question the forum-selection clause included in the General Terms of Use posted to the DAN.com website.”
I’ve not seen the “did not question the clause in reliance upon representations” exception to forum selection clauses, but if the court believes this complaint smells like a contract claim in a tort disguise, then there is going to need to be a pretty compelling reason why the forum selection clause should not apply.
You can say “I didn’t pay attention to the terms because I listened to what they said” all day, but there is also an integration clause in the Dan.com terms:
“15.3 The provisions of these Terms set out the legal relationship between the Parties and replace all previous agreements or statements made by the Contractor and only provide evidence for it.”
Whether that was there at the time, or whether the plaintiff has some other authority or interesting factual distinction in mind, or whether the plaintiff is bluffing, all remain to be seen.
If you are on team plaintiff, then you are going to hope you have more than “but this is not a contract claim”.
One clue might be here:
“11.Venue is proper in this District pursuant to 28 U.S.C. §§ 1391(b) and (c) because Defendants are subject to personal jurisdiction in this District, and the unilateral forum-selection clause posted to the Dan.com website is not enforceable under either United States or European Union law.”
It would be more illuminating to know why the plaintiff believes that to be so. One can, of course, make “policy arguments” to the effect of “Gosh, it’s really, really, really, not fair” but absent certain relatively rare and extreme conditions, courts aren’t in the business of deciding if contracts are “fair”, they are in the business of deciding if they are enforceable.
Again, please don’t mistake some casual poking around as a substitute for actual legal research of the kind in which one should engage before filing, or challenging a suit – even moreso if you are going to hire counsel that works out of Montchanin, Delaware. Counsel’s office is located just uphill from the original DuPont family estate. When you see news clips of President Biden going to church on Sunday, that is directly across the street from counsel plaintiff has selected, in the heart of the most expensive real estate in Delaware. Somebody’s got to pay that rent, so it might as well be Stands4 LLC, I suppose, lol.
But the takeaway for those of you in the cheap seats is that you should pay attention to these sorts of things and don’t assume you have legal recourse in your local courts. Pay attention to the statement from Dan.com above that if you are in the US and have a problem with them, then it is their view you are not going to litigate that problem in the US.
John Berryhill says
Ah, here you go. Directly from the Third Circuit Court of Appeals, which is the controlling appellate jurisdiction that includes the District of Delaware:
Coastal Steel v. Tilghman Wheelabrator LTD, 709 F.2d 190, 203 (3d Cir. 1983):
“The second circumstance relied on by the district court for denying enforcement is that Coastal has asserted tort claims as well as contract claims, and that the forum selection clause is inapplicable to the former. The difficulty with this reasoning is that it ignores the reality that the Tilghman-Farmer Norton contract is the basic source of any duty to Coastal. There is no evidence suggesting that the clause was not intended to apply to all claims growing out of the contractual relationship. If forum selection clauses are to be enforced as a matter of public policy, that same public policy requires that they not be defeated by artful pleading of claims such as negligent design, breach of implied warranty, or misrepresentation. Coastal’s claims ultimately depend on the existence of a contractual relationship between Tilghman and Farmer Norton, and those parties bargained for an English forum. We agree with those courts which have held that where the relationship between the parties is contractual, the pleading of alternative non-contractual theories of liability should not prevent enforcement of such a bargain.See Bense v. Interstate Battery System of America, Inc.,683 F.2d 718 (2d Cir. 1982) (franchise agreement with forum selection clause and antitrust claim); Gordonsville Industries, Inc. v. American Artos Corp.,549 F. Supp. 200 (W.D.Va. 1982) (contract for industrial installation with forum selection clause and state law design defect, negligence, and warranty claims); Hoes of America, Inc. v. Hoes,493 F. Supp. 1205 (C.D.Ill. 1979) (distributorship agreement with forum selection clause and state law business tort claim).”
Misrepresentation is expressly called out as an insufficient claim to avoid a forum selection clause.
(Hoes of America v. Hoes must have been quite the interesting proceeding. You have to be careful of those cheap foreign ones.)
Andrew Allemann says
It looks like there are two forums in the TOS. Usually Dutch courts, but if it’s a US buyer and they pay with a credit card that’s processed by Ayden, which I believe is their main CC processor, then it’s US courts.
Steve says
Thanks for the excellent in-depth analysis John.
Kate says
180K paid in BTC to an anonymous person ? Don’t tell the Dutch IRS.
thelegendaryjp says
So they made an exception and then paid out in bitcoin.
How do you post that meme of the guy just blinking?
Eric Borgos says
If this domain was stolen, why was it not locked by the registrar? Doesn’t the original owner have an obligation to track the domain to make sure something like this does not happen?
BIll Hartzer says
An industry-wide list of stolen domains is a great idea. DNProtect has been maintaining a list, and has a form for reporting them, as well.
In this case, though, it sounds as if the domain wasn’t reported stolen until after the domain was sold?
Samer says
Keep growing the list. Thank you!