Shmueli v. Corcoran Group

• Decision Date: 25 July 2005
• Docket Number: 104824/03
• Citation: 9 Misc.3d 589,802 N.Y.S.2d 871,2005 NY Slip Op 25302
• Parties: SARIT SHMUELI, Plaintiff, v. CORCORAN GROUP et al., Defendants.
• Court: New York Supreme Court

9 Misc.3d 589

802 N.Y.S.2d 871

2005 NY Slip Op 25302

SARIT SHMUELI, Plaintiff, v. CORCORAN GROUP et al., Defendants.

104824/03

Supreme Court, New York County.

July 25, 2005.

Saul Ewing, LLP, New York City (John J. Pribish and Michael A. Rowe of counsel), for defendants.

Morris, Duffy, Alonso & Faley, New York City (Barry M. Viuker of counsel), for plaintiff.

OPINION OF THE COURT

HERMAN CAHN, J.

This is an action for damages arising out of defendant Corcoran Group's termination of its business relationship with plaintiff. Defendants are alleged to have wrongfully excluded plaintiff from various lists that she allegedly maintained on defendants' computer after the termination. They move (sequence No. 003) for summary judgment dismissing the second amended complaint (CPLR 3212).

The first cause of action asserts that a computerized list prepared by plaintiff and maintained on the computer furnished to her by defendants was converted. The issue of whether a computerized list can be converted is a new one in our law. The court holds that the cause of action for conversion will lie.

Facts

Plaintiff is a real estate broker who was retained by defendant Corcoran Group in 1996 as an "independent contractor real estate agent" (Hall affidavit ¶ 2). Defendant Tresa Hall is Corcoran's executive vice-president and sales manager.

Plaintiff was not a salaried employee, but received a share of the commissions on matters she worked on.

Corcoran provided plaintiff with an office equipped with essentials such as a computer and telephone. The amended complaint alleges (¶ 7) that, over the course of her five-year tenure, plaintiff maintained computer records of "all of the real estate deals she had participated in over 14 years," i.e., prior to, and independent of, her association with Corcoran, as well as those she worked on while at Corcoran. The amended complaint further alleges (¶ 8) that, during that tenure, plaintiff also maintained a hard copy, handwritten, list of "380 individuals and companies, including phone numbers, fax numbers and addresses of people she contacted to sell real estate to." During that tenure, plaintiff received awards from Corcoran in 1999 and 2001 in recognition of her generation of over $2,000,000,000 in annual sales volume for each of those years (Viuker affidavit, exhibit G).

On March 18, 2002, during a meeting conducted in Hall's office, Hall terminated plaintiff's contract with Corcoran. The amended complaint alleges that when plaintiff returned to her office to collect her belongings, she discovered that her computer access code had been changed, and her hard copy list of client contacts was taken. Such deprivation is alleged to continue until the present time, despite plaintiff's demands for the return of her computerized and handwritten deal and client lists.

The amended complaint seeks $3,000,000 in damages, asserting causes of action for conversion (first cause of action), intentional infliction of emotional distress (second), breach of bailment (third), misappropriation of proprietary information (fourth), and interference with prospective business relations (fifth).

Discussion

Summary judgment may only be granted if the movant is entitled to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issue of fact (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 [1985]; Zuckerman v City of New York, 49 NY2d 557 [1980]).

Conversion (First Cause of Action)

"The tort of conversion is established when one who owns and has the right to possession of personal property proves that the property is in the unauthorized possession of another who has acted to exclude the rights of the owner" (Republic of Haiti v Duvalier, 211 AD2d 379, 384 [1st Dept 1995]). The history of the application of this particular common-law cause of action — "conversion" — has always centered exclusively on the physical theft of specific, identifiable, corporeal, tangible, personal property, in its most rudimentary sense (e.g., Comprehensive Community Dev. Corp. v Lehach, 223 AD2d 399 [1st Dept 1996] [medical files]; Warner v Village of Chatham, 194 AD2d 980 [3d Dept 1993] [automobiles]; Wallingford v Kaiser, 110 App Div 503 [4th Dept 1906] [animals]; see also, Manufacturers Hanover Trust Co. v Chemical Bank, 160 AD2d 113 [1st Dept 1990] [specifically identifiable, segregated, funds], lv denied 77 NY2d 803 [1991]).¹

By contrast, as the concept of property expands to the less tangible — such as economic rights and interests — courts have held that the usurpation of such interests is actionable under causes of action other than "conversion," which may entail added elements of proof (e.g., MBF Clearing Corp. v Shine, 212 AD2d 478 [1st Dept 1995] [wrongful diversion of trade orders to brokers other than plaintiff]; Roemer & Featherstonhaugh P.C. v Featherstonhaugh, 267 AD2d 697 [3d Dept 1999], lv denied 95 NY2d 758 [2000] [wrongful usurpation of economic interests such as stock options and business opportunities]).

There can be no doubt that plaintiff's handwritten record of real estate contacts is, by virtue of its physical nature, susceptible to conversion, and, thus, may form the basis for such a cause of action. The theory of damages for conversion is compensation for the value of the item taken, if no longer physically retrievable (Restatement [Second] of Torts § 225). Plaintiff has alleged the elements of a conversion, to wit, defendants' wrongful taking of her handwritten list, to her exclusion. Therefore, the first cause of action is easily sustainable as to that writing.

The status of plaintiff's computerized lists, on the other hand, entails further analysis. While the handwritten list is a "literal" document, the computerized one is — to coin relevant jargon — "virtual." Virtual, though it may be, it can undeniably transform to literal form by the mere expedient of a printing key function. The question is, does the common-law tort of conversion become an extinct vestige of the past as to documents maintained on a computer, merely because traditional definitions of documents evolve over time to the point where wood pulp is no longer the only required medium upon which to record data? Does not the concept of conversion, i.e., wrongful exclusionary retention of an owner's physical property, apply to an electronic record created by a plaintiff and maintained electronically as much as it does to a paper record so created? The court today holds that it does.

The tort of conversion has its origins in the ancient common-law writ of trover, created "as a remedy against the finder of lost goods who refused to return them" (Restatement, supra, § 242, Comment d). Because of that origin, the tort of conversion² was limited to property which could be lost and found, i.e., tangible personalty, as opposed to real property (id.). As the nature of personal property evolved to the point where tangible documents represented highly valuable rights, such as promissory notes, stock certificates, insurance policies, and bankbooks, the tort of conversion was expanded by common-law courts to include such documents within its definitional scope, despite their intangible aspects, which, invariably, are the primary components of the document's value (id., Comment b).³

The Court of Appeals took part in the evolution of the common-law cause of conversion when it applied the tort to the theft of stock in Hartford Acc. & Indem. Co. v Walston & Co. (21 NY2d 219 [1967], adhered to on rearg 22 NY2d 672 [1968]). The Court declared that "`[a]n owner does not forfeit his ownership for failure to take good care' of intangible personal property `any more than he forfeits it for failure to take good care of his watch.'" (Id. at 221, quoting People's Trust Co. v Smith, 215 NY 488, 493 [1915].) There should be no reason why that practical view should not apply equally to the present generation of documents — electronic documents — which are just as vulnerable to theft and wrongful transfer as paper documents, if, indeed, not even more so.

Other courts have grappled with the need to modernize the law of conversion in order to afford plaintiffs a just civil remedy in response to outright theft.

In Kremen v Cohen (337 F3d 1024 [9th Cir 2003]), the defendant was accused of stealing plaintiff's Internet domain name by falsely informing the Internet domain name registrar that the plaintiff abandoned the name, and then taking it for himself. The court reversed a district court dismissal of plaintiff's conversion claim on intangibility grounds, stating that "[t]his rationale derives from a distinction tort law once drew between tangible and intangible property: Conversion was originally a remedy for the wrongful taking of another's lost goods, so it applied only to tangible property. Virtually every jurisdiction, however, has discarded this rigid limitation to some degree." (Id. at 1030 [citation omitted].) The court concluded that "Kremen's domain name falls easily within this class of property . . . That it is stored in electronic form rather than on ink and paper is immaterial." (Id. at 1033-1034.)⁴

In a closer case, Astroworks, Inc. v Astroexhibit, Inc. (257 F Supp 2d 609 [SD NY 2003, Scheindlin, J.]), the plaintiff's principal, in anticipation of a possible joint venture, became privy to the ideas of defendant's principal for an Internet, Web-based, business. The plaintiff sued the defendant for "converting" those ideas for its own gain. As in the present case, dismissal was sought on intangible property grounds. The court upheld the claim, stating that "[t]his sort of misconduct is the essence of conversion: `the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights.' State v. Seventh Regiment Fund, Inc., 98 N.Y.2d 249, 259, 746 N.Y.S.2d 637, 774 N.E.2d 702 (2002)." (257 F Supp 2d at 618.) The court added that:

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