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Domain Name Auction Company Sued Over Sham Bids
The National Law Journal
November 13, 2009
A Miami-area resident is suing Internet domain name auction company SnapNames.com Inc. in Florida state court following the company's admission that an employee secretly participated in the company's auctions.
The class action, Cueto v. SnapNames.com Inc., which was filed on Nov. 9 in the Circuit Court of the 11th Judicial Circuit in Miami-Dade, Fla., claims that legitimate bidders overpaid, and the company unfairly profited, because of the employee's actions. The case defines the class as anyone who was outbid or submitted higher bids in a SnapNames.com domain names auction because of the employee's actions.
Miami-Dade County, Fla., resident Carlos Cueto is suing the Portland, Ore.-based SnapNames.com and its Los Angeles parent, Oversee.Net Inc., for allegedly violating Florida's deceptive and unfair trade practices act and unjust enrichment.
Santiago Cueto of Coral Gables, Fla.'s Cueto Law Group, the plaintiff's brother, said Carlos Cueto has acquired 3,000 to 5,000 domain names during the past few years. Santiago Cueto said Carlos buys the names as a hobby, but he tries to make a little money from the venture.
A Nov. 4 e-mail Carlos received from a SnapNames.com executive about the employee's actions prompted the lawsuit. Santiago Cueto said his brother had frequent instances of bidding $20 on an obscure domain names and seeing another bid come in for hundreds, or thousands, of dollars.
"It's an anonymous process," Cueto said. "This is an industry begging for transparency. Right now you don't know who you're bidding against."
Cueto said other potential plaintiffs have called since the lawsuit was filed.
Technology blogs TechCrunch.com and Elliot's Blog have reported on the lawsuit.
Oversee.net spokesman Mason Cole confirmed a company statement posted on Elliot's Blog, which claimed that the improper bidding affected about 5 percent of SnapNames.com's auctions since 2005. According to the statement, only about 1 percent of SnapNames.com's auction revenues since 2005 can be attributed to the improper bidding.
SnapNames.com's statement also said the company is notifying affected customers and offering them a rebate. The rebate will be the difference between the price they paid and the price they would have paid if the employee didn't participate, plus 5.22 percent interest.
In an e-mailed statement, Cole said the company "is reviewing the complaint but the company will not be able to discuss details of any legal proceeding."
Although class action claims can be difficult to sustain, Cueto's case is strengthened by the fact that SnapNames.com has publicly admitted that some shill bidding occurred at the company, said Ernest Grumbles III, an attorney at Minneapolis-based Merchant & Gould, who isn't involved in the case.
"They're not taking the position that this has never happened; it's more like a product recall, [where a company says] we understand that there's a mistake here and we're trying to remedy it," Grumbles said. "[But] companies are liable for the acts of their employees."
