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It wasn’t long ago that in order to steal something, you had to physically get your hands on it first. It was only then that you could be held liable under the tort of conversion, which, simply put, is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner’s rights. Beyond simple personal property, the “goods” converted may include intellectual property. Today, most jurisdictions still hold to the conventional understanding that conversion can only apply when there is at least some physical aspect to the misappropriated item. However, there is a measured trend recognizing a broader scope of property in this area of valuable electronic content. In a progressive stride earlier this year, New York’s highest court, in Thyroff v. Nationwide Mutual Insurance Co., 8 NY3d 283 (2007), broke free from the long-standing limitations on the action of conversion, holding that electronic records are subject to the claim of conversion. This article will discuss the history of the tort of conversion briefly, its current status in New York, and how conversion is treated in some other jurisdictions. A Brief History The ancient doctrine of conversion has its roots in the Norman Conquest of England in 1066, where private actions, or “recuperatory appeals” of robbery or larceny, resulted in either the immediate execution of the thief if caught in possession of the stolen goods, or in other cases, a potentially lethal duel between thief and victim to determine rightful ownership. Eventually, trial by jury supplanted the duel as the means to resolving the theft, yet the remedy remained limited to only the physical return of the goods to the owner. In the late 15th century, the cause of action of “trover” was created in common law to address the legal gap where interference with property rights went beyond mere trespass and could be considered a conversion of property. The tort of conversion was subsequently created to fill remaining gaps where the action of trover would not lie, such as a claim dealing with the right of future possession. 1 Put simply, it is the civil analog of the criminal actions of robbery and larceny. As such, conversion was originally a remedy for the wrongful taking of another’s lost goods, so it applied only to tangible property. Most jurisdictions, however, have ignored or expressly rejected this rigid limitation to a certain degree, with some courts rejecting it for particular intangibles, but not others. See Prosser and Keeton on the “Law of Torts �15,” at 89, 91 (W. Page Keeton ed., 5th ed. 1984); Iglesias v. Hoyt, 848 F2d 362, 364 (2d Cir. 1988) (noting that conversion does “include documents which embody an intangible right, such as stock certificates and bonds”); Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th 1559, 1565 (1996) (recognizing conversion of information recorded on floppy disk). As some property began to represent value apart from its physical nature, such as financial instruments and certificates, courts have guardedly broadened the scope of conversion to include instances when an intangible right is united with a tangible object, that is, inseparably “merged” with the chattel. See Agar v. Orda, 264 NY 248, 251 (1934); Iglesias v. United States, 848 F2d 362, 364 (2d Cir. 1988). Paper stock certificates and promissory notes are a good examples of this type of merged property. In some jurisdictions, conversion does not necessarily hinge on the existence of a paper document being taken, as courts recognize that it is the information memorialized in the document that has intrinsic value capable of being converted. Thyroff, 8 NY3d at 292. 2 Departure and Resistance In bringing the law into line with the technological era, some jurisdictions have begun to recognize that property might not need a physical anchor in order to be misappropriated and therefore subject to a claim of conversion. In the landmark case Kremen v. Cohen, 337 F3d 1024 (9th Cir. 2003), the circuit court was faced with the question of whether the plaintiff presented a valid claim of conversion when a domain name registrar erroneously assigned the plaintiff’s Internet domain name to a new individual based on a forged letter submitted by the defendant to the registrar. In analyzing a string of California appellate cases, the court concluded that even if California law retains some vestigial merger requirement, it is minimal and at most requires only some connection to a document or tangible object. Accordingly, the court ruled that the plaintiff’s domain name was personal property, subject to a conversion claim, irrespective of whether the electronic property was tangible or had “merged” into a tangible document. Id. at 1033-34. Agreement regarding the merger requirement of the tort of conversion is not, however, universal, and some jurisdictions are still contending with the more traditional characteristics of personal property rights. For example, in Famology.com, Inc. v. Perot Sys. Corp., 158 FSupp2d 589 (E. D. Pa. 2001), the U.S. District Court for the Eastern District of Pennsylvania, in a case involving the use of a domain name, commented on the merger doctrine. Specifically, the court stated that, under Pennsylvania law, “the process of expanding the types of property that may be converted has stopped with the kind of intangible rights which are customarily merged in, or identified with some document,” and, as the plaintiff had conceded, a domain name was not of this type. Id. at 591. New York’s Position Thyroff was referred to the New York Court of Appeals when the U.S. Court of Appeals for the Second Circuit, realizing that the conversion of purely intangible property was an unresolved legal issue, certified the question of whether the common law cause of action of conversion applies to certain electronic computer records and data. 3 Prior to the decision, the New York Court of Appeals had not previously considered whether the common law should permit conversion for intangible property interests that do not strictly satisfy the merger test. Thyroff involved a dispute between the plaintiff-insurance agent and the defendant-insurance company, over the defendant’s cancellation of the plaintiff’s exclusive agent contract. The day after termination, the defendant Nationwide repossessed its “agency office-automation” computer system that it had leased Mr. Thyroff, denying him access to the hardware and the electronic records and data he had stored on them. The seized data allegedly included business records, personal e-mails, and customer information. Consequently, the plaintiff filed suit, alleging, among other things, claims of conversion of the electronic records. Responding in the affirmative to the Second Circuit’s question, the Court of Appeals concluded that the plaintiff’s electronic records that were stored on a computer are indistinguishable from printed documents and are subject to a claim of conversion in New York. 4 In reaching its decision, the New York court weighed the arguments for and against expanding the tort and noted a growing consensus among other jurisdictions to uphold conversion for intangible property. In addition to the Internet domain name in Kremen, the court cited cases accepting as property capable of being converted, computerized client lists, Internet Web sites, computer software, satellite cable signals, electronic word-processing documents, and even a person’s name. 5 Some of these other courts sustained the conversion cause of action by expanding the merger doctrine, while others simply ignored the historical limits of conversion. A prevalent rationale for updating the scope of conversion was that virtual documents really hold no different value than the tangible documents that the merger doctrine already covers. The New York Court of Appeals agreed with this logic. Upon considering the strength of common law to respond, “albeit cautiously and intelligently,” to the demands of common sense justice in an evolving society, the court concluded that for New York, the time to respond had arrived. Thyroff, 8 NY3d at 291-292. Distinctions Expanding the conversion cause of action to cover property that is detached from a physical representation does not necessarily mean all intangible interests are considered. Thus, although an idea alone cannot be converted, the “tangible expression or implementation of that idea” can be. See Astroworks, Inc. v. Astroexhibit, Inc., 257 FSupp2d 609, 618 (SDNY 2003) (while the accused party could not have converted the idea as a matter of law, they could have converted that idea reduced to practice, i.e., the Web site). Still, as electronic documents are being welcomed into the ambit of property, jurisdictions have already made distinctions. In In re Wal-Mart Wage and Hour Employment Practices Litigation, 2007 U.S. Dist. LEXIS 38075 (D. Nev. May 23, 2007), for example, the District of Nevada refused to expand various states’ conversion laws to cover the conversion of evidence essential to protect and enforce intangible property rights. In that case, which involved the consolidation of a number of state claims, 6 the plaintiffs, generally speaking, claimed conversion of unpaid wages and electronically stored payroll records of hours, which were alleged to have been improperly recorded. The district court was unwilling to expand the tort of conversion to cover the plaintiff’s claims. Indeed, there are some notable differences in the types of interests at issue in Wal-Mart as compared to those in the Thyroff case. The alleged conversion of electronic payroll records in Wal-Mart were dissimilar to the electronic information addressed by Thyroff because the records fell into the unenforceable category of conversion of general indebtedness. In seeking dismissal of the conversion claims, the defendants contended: (1) that the plaintiffs have no property interest in the payroll records themselves, and thus the defendants’ alleged alteration of the records cannot constitute conversion; and (2) that the plaintiffs ultimately seek unpaid wages, which cannot be the subject of a conversion claim. With respect to defendant’s first argument, the court determined, under the laws of the various jurisdictions, that the payroll records did not embody the right to immediately possess the unpaid wages or the power to acquire the wages. Thus, the payroll records could not be considered the equivalent of the chattel itself, subject to a conversion claim, as a promissory note would be. In re Wal-Mart, 2007 U.S. Dist LEXIS at *19-20. While some of the jurisdictions followed the traditional merger doctrine (e.g., Utah), and other states appeared to recognized a broader interpretation of conversion of electronic records (e.g., Nebraska), the court reasoned that all the respective jurisdictions would not entertain a conversion claim where the plaintiff has not alleged a possessory interest in the document evidencing the debt, which was the case in Wal-Mart. Concerning the defendant’s second argument, the court catalogued various debtor-creditor relationships recognized throughout the jurisdictions and concluded that, in general, the respective jurisdictions only recognize a conversion claim for monies when there is a specific obligation for a well-defined amount of money, and traditionally only when the obligation was merged with a document. In Wal-Mart, the court found that the defendants’ payroll records constitute evidence of a general debt owed for services performed, not intangible property rights merged in a document. Id. at *20. Thus, the court concluded that the plaintiffs could not establish a conversion claim under the laws of the various states where a defendant allegedly alters its own electronic payroll records to avoid paying the plaintiff’s wages. In the end, it was conceivable that the court would have accepted a claim relating to an electronic record of a specific amount of money without merger to a tangible document, but that matter was superseded because the court found that the plaintiffs did not have property rights in payroll records representing general indebtedness. Conclusion As electronic methods continue to replace the physical storage of paper-based communications and related items, the law may continue to rely less on outdated definitions in determining what is considered personal property. In many instances, as Thyroff illustrates, courts have begun to recognize that the value of information does not necessarily change because it has been encoded in electronic form rather than being reduced to paper. As the Ninth Circuit noted in Kremen: “It would be a curious jurisprudence that turned on the existence of a paper document rather than an electronic one. Torching a company’s file room would then be conversion while hacking into its mainframe and deleting its data would not.” Richard Raysman and Peter Brown are partners at Thelen Reid Brown Raysman & Steiner. They are co-authors of “Computer Law: Drafting and Negotiating Forms and Agreements” (Law Journal Press). Seth Mastin, a summer associate at the firm, assisted in the preparation of this article. Endnotes: 1. The Restatement (Second) of Torts now defines conversion as an intentional act of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel. Restatement [Second] of Torts �222A [1]. 2. The Restatement (Second) of Torts states the “merger” theory as follows: “(1) Where there is conversion of a document in which intangible rights are merged, the damages include the value of such rights. (2) One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted” (Restatement [Second] of Torts �242). 3. After the Court of Appeals ruled that electronic records could be subject to a claim of conversion, the Second Circuit vacated the district court’s dismissal of the plaintiff’s conversion claim and remanded the matter for further proceedings. Thyroff v. National Mutual Insurance Co., 2007 U.S. App. LEXIS 15348 (June 15, 2007). 4. Thyroff, 8 NY3d at 292-93. Because the Plaintiff’s claims were originally dismissed under FRCP 12(b)(6), the New York court construed the facts in the plaintiff’s favor and assumed that he was the owner of the electronic records. 5. The cases are, respectively: Kremen v. Cohen, 337 F3d 1024 (9th Cir. 2003); Shmueli v. Corcoran Group, 9 Misc3d 589 (N.Y. Sup. Ct. 2005); Astroworks Inc. v. Astroexhibit Inc., 257 FSupp2d 609 (SDNY 2003); Cole v. Control Data Corp., 947 F2d 313 (8th Cir. 1991); Quincy Cablesystems Inc. v. Sully’s Bar Inc., 650 FSupp 838 (D. Mass. 1986); Mundy v. Decker, 1999 Neb. App. LEXIS 3 (Neb. Ct. App. 1999); Town & Country Props. Inc. v. Riggins, 249 Va. 387 (1995). 6. The states involved included Delaware, Utah, Montana, Alaska, Hawaii, Maine, Wyoming, Nebraska, Nevada and Idaho.

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