Liu v. Shapiro

Background

Xiao Sheng Liu, also identified in the opinion as Vincent Yap, alleged that he acquired the internet domain name 717.com in early 2018 for 3.1 million Chinese yuan, described as nearly $460,000. Liu alleged that, before March 2021, an unidentified person referred to as “John Doe” took control of his registrar account and transferred ownership of the domain name.

The complaint alleged that Dashiell Shapiro purchased 717.com through a domain-name broker on March 18, 2021, for $101,000. Liu alleged that Shapiro knew or should have known that the seller did not have valid title. The circumstances Liu identified included the allegedly low sales price, the timing of the sale, and the anonymous registration. Shapiro was named in claims for conversion, rescission of the sale, and declaratory relief. The complaint asserted other claims against Doe, but those claims were not relevant to Shapiro’s motion.

Motion and legal standard

Shapiro moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court was required at this stage to accept the complaint’s material allegations as true and view them favorably to Liu. The complaint needed to contain enough factual allegations to make the claims plausible, but it did not need to prove them.

Shapiro argued that he was a bona fide purchaser for value—an allegedly innocent buyer who paid for the property—and that Liu had not shown a viable claim against him. Shapiro also questioned whether Liu had adequately protected his registrar account and suggested that an employee might have been involved in the loss.

Court’s analysis

The court concluded that Shapiro’s factual arguments were not suitable for resolution on a motion to dismiss. Liu alleged that he had taken reasonable precautions to protect his registrar account and alleged facts supporting the claim that Shapiro knew or should have known that 717.com had been stolen. Shapiro’s challenges to the accuracy of those allegations showed why the issues required a later stage of the case rather than resolution based only on the complaint.

The court further stated that the conversion claim would remain viable even if Liu had not adequately alleged that Shapiro had constructive notice—that is, facts that could legally be treated as notice that the domain name was stolen. Relying on the authorities discussed in the opinion, the court explained that conversion is a strict-liability tort and that a buyer’s good faith or lack of knowledge is ordinarily not relevant. It also distinguished property obtained through theft from property obtained through fraud: theft results in void title, while a voluntary transfer obtained through fraud may result in title that is voidable.

As to the claim seeking to undo the sale, the court noted that Liu might not be able to pursue “rescission” as such because he was not a party to the transaction. The court nevertheless stated that, if Liu proved that 717.com was stolen from him, he could be entitled to have the sale set aside so the domain name could be returned to him.

Disposition

The court denied Shapiro’s motion to dismiss. It ordered Shapiro to answer the complaint within 20 days of the order. The opinion did not resolve whether Liu’s allegations were true or whether Liu would ultimately prevail.