On April 6, 2010, the Ninth Circuit Court of Appeals sitting in California held that more facts needed to be developed before a lawsuit respecting the wrongful acquisition of domain names could be decided. In the course of that holding, the Court in  CRS Recovery, Inc. v. Laxton, 600 F.3d 1138 (9th Cir. 2010), analyzed the legal principal called the important “innocent purchaser defense” under California law.
The Court’s analysis was as follows. It stated that “[u]nder California law, ‘[c]onversion is generally described as the wrongful exercise of dominion over the personal property of another.” Fremont Indem. Co. v. Fremont Gen. Corp.,148 Cal.App.4th 97, 55 Cal.Rptr.3d 621, 638 (2007). The common law rule thus holds that so long as [the defendant] exercised conscious dominion and control over [the domain at issue], he assumed the risk on the question of whether he is correct about the true title holder. Poggi v. Scott,167 Cal. 372, 139 P. 815, 816 (1914). Further, where a person entitled to possession demands it, the wrongful, unjustified withholding is actionable as conversion. See 5 Witkin Summary of Cal. Law Torts,§ 712(2) (10th ed.2005).

California does, however, recognize an innocent purchaser defense. ‘As a general rule, an innocent purchaser for value and without actual or constructive notice that his or her vendor has secured the goods by a fraudulent purchase is not liable for conversion.’ ” Express Media Group, LLC v. Express Corp.,No. C 06-03504, 2007 WL 1394163, at *5 (N.D.Cal. May 10, 2007) (quoting Witkin, supra, at § 716 (Innocent Buyer)). The law distinguishes between a purchaser whose vendor obtained title by fraud and a purchaser whose vendor obtained title by theft, because an involuntary transfer results in a void title, whereas a voluntary transfer, even if fraudulent, renders the title merely voidable. Id. (citing Cal. Com.Code § 2403(1)); see also State Farm Mut. Auto. Ins. Co. v. Dep’t of Motor Vehicles,53 Cal.App.4th 1076, 62 Cal.Rptr.2d 178, 181 (1997). Therefore, “an innocent purchaser for value and without notice, actual or constructive, that his vendor had secured the goods by a fraudulent purchase, is not liable for conversion.” 

 Oakdale Vill. Group v. Fong,43 Cal.App.4th 539, 50 Cal.Rptr.2d 810, 814 (1996)… .

“The key determination was thus whether [the original domain owner] lost control of [the domain at issue] as the result of theft or fraud. …”  On that basis, the Court “remand[ed] to the district court for further fact-finding to resolve Laxton’s claims that Mayberry lost rl.com due to fraud.” 

Id. at 1145-6

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