Businesses often use social media to market their products and services, but unlike other forms of advertising, services like Facebook and Twitter enable companies to interact directly with consumers. This allows them to build relationships with existing customers and engage potential customers. A business’ social media presence may acquire a value of its own as the company and its brand grows, and it acquires “fans” or “followers” that provide it with an audience. A recent decision from a Louisiana bankruptcy court noted the value of social media. In re Thundervision, LLC, No. 09-11145, mem. op. (Bankr. E.D. La., Feb. 5, 2014). The court found that an employee breached a fiduciary duty to his employer, a magazine publisher in Chapter 11 bankruptcy, by starting a competing magazine and using the company’s social media accounts to promote it to the company’s followers.
Thundervision, LLC published Louisiana Home & Gardens (LH&G) magazine as its principal business activity. It maintained a website to support the magazine, ourhouse.biz. The company is owned and managed by two members, one of whom, Roger Wayne Smith, was employed as its primary salesperson. Thundervision operated out of Smith’s home, and employed between two and eight people at different times. It filed for Chapter 11 bankruptcy in April 2009. The bankruptcy court confirmed a reorganization plan in June 2010, but the magazine’s sales began to drop in November 2010. Thundervision published the last issue of LH&G in May 2011, and Smith unilaterally decided to cease operations soon afterward.
Smith registered R W Smith Publishing, LLC with the Louisiana Secretary of State in April 2011, naming himself as the sole member. RW Smith began publishing Our Louisiana magazine after LH&G stopped publication, using the same office, telephone and fax numbers, computers, and office equipment that Thundervision had used for LH&G. The new company also used LH&G‘s subscriber and advertiser lists. It used LH&G‘s Facebook page, which had 1,533 followers, to announce a new page for Our Louisiana. It began using the ourhouse.biz website to solicit Our Louisiana subscriptions, although the site’s content belonged to LH&G. It never compensated Thundervision for the use of these assets.
The Chapter 11 trustee filed an adversary proceeding against Smith, RW Smith, and Thundervision’s other managing member in September 2012. The claims included breach of fiduciary duty, unfair trade practices, and copyright infringement. The court found that Smith breached his fiduciary duty to Thundervision by ceasing publication of LH&G and starting a competing magazine, and by using LH&G‘s confidential subscriber and advertiser lists. While the use of LH&G‘s Facebook page was not in itself a breach, it contributed to the court’s finding. However, the court found that Smith’s use of the Facebook page violated the state’s unfair trade practices statute. It held Smith liable to Thundervision for $63,863, plus $25,545 in attorney’s fees.
Small business attorney Samuel C. Berger handles a variety of legal matters for New York and New Jersey entrepreneurs and businesses. We offer fixed-fee legal-service packages to help our clients understand their rights and obligations, keep their operations running smoothly, and grow their businesses and prosper. Contact us today online or at (212) 380-8117 to schedule a confidential consultation with a member of our legal team.
More Blog Posts:
Protecting Your New York Company’s Brand from Online Counterfeiters, New York & New Jersey Business Lawyer Blog, January 30, 2014
Maximum Damage Award to Photographer Shows the High Cost of Using Pictures Posted to Social Media Without Permission, New York & New Jersey Business Lawyer Blog, January 15, 2014
After Employer Accesses Employee’s Facebook Posts, New Jersey Court Allows Invasion of Privacy Claim to Proceed, New York & New Jersey Business Lawyer Blog, August 16, 2012
Photo credit: Original uploader was Dry Martini at it.wikipedia [Public domain], via Wikimedia Commons.