Garrity Kuester
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
A motion for a preliminary injunction in a bankruptcy is governed by Federal Rule of Bankruptcy Procedure 7065, which incorporates Federal Rule of Civil Procedure 65.[1] Under Federal Rule of Civil Procedure 65, a party seeking injunctive relief must prove that:
“(1) it has a substantial likelihood of success on the merits; (2) it will suffer irreparable harm if the court does not issue an injunction; (3) the irreparable harm outweighs whatever damages the injunction may cause the opposing party; and (4) the injunction would not be adverse to the public interest.”[2]
In Vital Pharmaceuticals, Inc. v. Owoc the United States Bankruptcy Court for the Southern District of Florida held that, pending the resolution of ownership claims of certain social media accounts, a court may issue a preliminary injunction to maintain the status quo by enjoining both parties from accessing and using such accounts.[3] In 1993, Mr. Owoc founded Vital Pharmaceuticals, a performance energy drink company that produced “Bang energy” drink.[4]Vital attributed its success in generating over six billion in sales to the use of nontraditional marketing channels, specifically, social media.[5] Along with Vital’s social media accounts, there were three separate social media accounts controlled by the Owocs (“CEO Accounts”), used to promote Vital’s Bang energy drink.[6] Although Mr. Owoc claims to have retained possession and control over the CEO Accounts' passwords, he did share these passwords with key employees, who were responsible for creating and posting content on these accounts.[7] In November of 2023, Vital filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) and began marketing its assets for sale.[8] Ownership of the CEO Accounts had not yet been determined to belong to the Owocs or Vital for the purpose of this sale.[9] Regardless, Vital anticipated that bids for its assets would be negatively impacted and feared the Owocs would post potentially detrimental content if the Owocs continued to control these accounts.[10] As a result, Vital filed an adversary proceeding seeking a declaration that the CEO Accounts were property of the estate and demanding turnover of the CEO Accounts.[11] Vital also sought a temporary restraining order prohibiting the Owocs from using the CEO Accounts and mandating their turnover to Vital.[12] The parties thereafter entered into a stipulation prohibiting the Owocs from posting any content to the CEO Accounts.[13]However, upon the request of Vital, the Court held Mr. Owoc in contempt for violating this stipulation by making unauthorized rants on the CEO Instagram Account, and for failing to provide complete access to the CEO Accounts to Vital.[14] The Court extended the term of the temporary restraining order and maintained restrictions on both parties’ use of the CEO Accounts. Vital requested a further extension of the temporary restraining order in the form of a preliminary injunction until a final resolution as to the ownership of the CEO Accounts.[15]
In assessing the request for a preliminary injunction, United States Bankruptcy Court for the Southern District of Florida evaluated four factors. First, the Court considered whether Vital Pharmaceuticals had a substantial likelihood of success on its claim of owning the rights to the CEO Accounts on social media platforms.[16] The Court found Vital’s claims had “a substantial likelihood of success on the merits” given the explicit use of the CEO Accounts to promote Vital products and the company’s naming convention.[17] The Court dismissed the Owocs’ arguments regarding Instagram’s verification process as unreliable and minimally probative as to their ownership.[18] Second, the Court analyzed whether Vital would suffer significant irreparable harm if the Owocs could post or comment from the CEO Accounts.[19] The Court established that injury to Vital would be “likely in the absence of an injunction,” emphasizing the potential loss of valuable marketing assets and the likely irreversible alienation of millions of followers if Mr. Owoc were to post harmful content.[20] The Court emphasized that evidence of Mr. Owoc’s past misconduct was admissible in this context as it demonstrated a substantial risk of serious injury to Vital, making future injury appear imminent.[21]Third, the Court weighed the irreparable harm to Vital against the damage to Owoc’s “brand,” concluding that the balance overwhelmingly favors an injunction.[22] It found the Owocs’ arguments about brand damage due to inactivity on the CEO Accounts neither credible nor persuasive considering their initial agreement to a temporary restraining order.[23] Lastly, the Court considered whether the injunction would be adverse to the public interest, specifically focusing on whether it would infringe upon Mr. Owoc's free speech rights.[24] It clarified that an injunction would be a reasonable restriction on the time, place, or manner of speech, if “justified without reference to the content of the regulated speech, narrowly tailored to serve a significant governmental interest, and leaving open ample alternative channels for communication.”[25] The Court concluded that the proposed injunction does not infringe Mr. Owoc's First Amendment rights, as it merely restricts a person from using a social media account that may be determined to belong to another in the ongoing litigation.
In bankruptcy cases where the debtor is looking to sell assets whose ownership is disputed, a court may enjoin both parties to maintain the status quo and protect creditors' interests until the dispute is resolved. The issuance of such an injunction will be subject to the court’s evaluation of the traditional factors for injunctive relief.
[1] Fed. R. Bankr. P. 7065.
[2] In re Vital Pharm., No. 22-17842-PDR, 2023 Bankr. LEXIS 1387, at *4 (quoting Norwegian Cruise Line Holdings Ltd. v. State Surgeon General, Fla. Dep't of Health, 50 F.4th 1126, 1134–35 (11th Cir. 2022)).
[3] Id. at *7 (“There is only one way to preserve the relative positions of the parties pending a trial on the merits of Vital's claims: enjoin both parties from using the CEO Accounts.”).
[4] Id. at *1.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id. at *2.
[10] Id.
[11] Id. at *3.
[12] Id.
[13] Id.
[14] Id. at *4.
[15] Id.
[16] Id.
[17] Id. at *5 (“[E]ven if Mrs. Owoc created the CEO Instagram and CEO Twitter Accounts and directed Vital employees to create the CEO TikTok Accounts, she did so in her capacity as a Vital marketing employee. The CEO Accounts have ‘bang’ or ‘bangenergy’ in the account name or handle; the account names or handles follow the same naming convention as the Company Accounts… the account names or handles do not include Mr. Owoc's name; and the accounts were used to explicitly promote Vital products.”).
[18] Id. (“Instagram's guidance for verifying an account…makes no distinction between verifying an individual or verifying a brand. All [Instagram’s verification of Mr. Owoc rather than verification of the business] would establish is that Instagram verified the CEO Instagram Account… by verifying that Mr. Owoc was Vital's CEO. That evidence is minimally probative of who owns the rights to the CEO Instagram Account.’”).
[19] Id.
[20] Id.
[21] Id. at *6.
[22] Id.
[23] Id. (“The Owocs cannot bootstrap the sanction for Mr. Owoc's contempt violation prohibiting their use of the CEO Accounts for 45 days to now claim irreparable harm if the CEO Accounts remain dormant ‘for months longer.’ And … that harm is not irreparable. If the rights to the CEO Accounts are determined to belong to Mr. Owoc, Mr. Owoc will have the opportunity to reengage with the followers, whereas the harm to the Debtors with respect to alienation of the followers can likely not be repaired.”).
[24] Id. at *7.
[25] Id. (quoting Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989) (quoting Clark v. Community for Creative Non-Violence, 468 U.S. 288, 293 (1984))).