SS Farms v. Sharp
Question Presented
On appeal to the Ninth Circuit Court of the United States from the Eastern District Court of California:
Is there are "reasonable expectation of privacy" in documents stored with and accessed by a outside company?Background
In May 2009 company SK Foods filed for Chapter 11 bankruptcy. The bankruptcy court appointed Bradley Sharp as SK Foods' trustee. A trustee is the legal representative that sells off a bankrupted company's assets so that the proceeds may be distributed to creditors. Sharp took possession of all records located on SK Foods' premises, including the documents and electronic files stored on-site on behalf of a second company, SS Farms. Prior to the bankruptcy proceeding, SS Farms started storing financial, business, and other documents in a computer system maintained by SK Foods. SK Foods accessed, reviewed, and analyzed the documents when performing accounting and record keeping services for SS Farms. Both companies were owned by the same family.
SS Farms requested the return of their documents from SK Foods during the bankruptcy proceedings. Sharp refused, citing his legal duty as the trustee to review the contested documents. SS Farms filed a motion to remove Sharp as SK Foods' trustee, alleging that Sharp's continued possession of SS Farms documents violated the United States Constitution, the California Constitution, and state privacy laws. In September 2009 Sharp filed a counter-motion requesting a court order confirming his authority to possess and control the records in question.
The bankruptcy court denied SS Farms' motion and partially granted Sharp's counter-motion, holding that SS Farms had no "reasonable expectation of privacy" in the documents. The court focused on two rationales. First, the documents were stored on SK Foods' premises, with access granted to certain members of SK Foods' staff. Second, the US Department of Justice raided SK Foods in April 2008, which "necessarily put on everyone's radar screen the risk of storing [SS Farms] documents and information on SK Foods premises and computers." The court also rejected SS Farms' claim that Sharp had committed a property tort called "conversion," implying that SS Farms had consented to Sharp's possession of the documents.
SS Farms appealed to the United States District Court in the Eastern District of California. The Court affirmed the decision and adopted the same reasoning, finding that SS Farms "could not possibly have had a reasonable expectation of privacy" in the documents. The Court emphasized the fact that SS Farms' electronic files were "routinely accessed and reviewed by Debtor's employees" and that the DOJ raid should have placed SS Farms "on notice that documents stored with [SK Foods] could be subject to investigation and potential confiscation." SS Farms has appealed to the 9th Circuit and their opening brief is due on November 30, 2010.
EPIC's Interest
This case will have significant implications for social networking and cloud computing.
Social media sites are dangerous enough to personal privacy interests when they are commercially successful. Once a company files Chapter 11, the valuable lists of personal information they collect from customers become "assets," sold off to satisfy the company's debts. If this precedent stands, and there really is no "reasonable expectation of privacy" for electronic data stored offsite with third parties, the results could be dire. For example, in July of 2010, a website marketed to gay teenagers filed for bankruptcy and its creditors announced their intention to obtain and sell the personal contact information of its user base. This included the personal mailing addresses, email addresses, and personal stories of more than five hundred thousand young gay men, many of whom had not "come out." It wasn't until after the Federal Trade Commission wrote a letter to the creditors' attorneys about the website's privacy policy, and the letter was entered into the court's record, that the court ordered a Consumer Privacy Ombudsman to supervise the sale of customer lists. Without more formal, judicial protections, this problem will only multiply in scope and consequence.
Similar legal concerns surround the widespread adoption of Cloud Computing. Cloud Computing outsources the storage and processing of a company's computer data over the web. The company's computers connect to servers that are neither located on the company's premises nor owned by the company. This makes for a dynamic, competitive market, as each cloud computing contractor hunts down the cheapest opportunities to store and process data for its clients. Subcontractors (i.e., who provide component services for the contractor) constantly compete to cut costs, and those who fail to improve their efficiency can quickly go out of business. Again, without a more realistic assessment of "reasonable expectations of privacy," any cloud computing subcontractor who files for Chapter 11 could be forced to sell off all sensitive client data in its possession to creditors.
Legal Documents
Latest News
News Reports
Resources
Share this page:
Subscribe to the EPIC Alert
The EPIC Alert is a biweekly newsletter highlighting emerging privacy issues.
