Thrifty-Tel, Inc. v. Bezenek

• Decision Date: 28 June 1996
• Docket Number: INC,No. G013917,THRIFTY-TE,G013917
• Citation: 46 Cal.App.4th 1559,54 Cal.Rptr.2d 468
• Court: California Court of Appeals Court of Appeals
• Parties: , 96 Cal. Daily Op. Serv. 4933, 96 Daily Journal D.A.R. 7831 , Plaintiff and Respondent, v. Myron BEZENEK et al., Defendants and Appellants.

Page 468

54 Cal.Rptr.2d 468

46 Cal.App.4th 1559, 96 Cal. Daily Op. Serv. 4933,

96 Daily Journal D.A.R. 7831

THRIFTY-TEL, INC., Plaintiff and Respondent, v. Myron BEZENEK et al., Defendants and Appellants.

No. G013917.

Court of Appeal, Fourth District, Division 3, California.

June 28, 1996.

[46 Cal.App.4th 1563] William R. Roush, Santa Ana, for Defendants and Appellants.

Smith, Barab & Simpson, Martin J. Barab, Larry B. Vaughan, and Gita Nassiri, Beverly Hills, for Plaintiff and Respondent.

Peter Arth, Jr., General Counsel, Evelyn C. Lee, Staff Counsel, for Amicus Curiae Public Utilities Commission, upon the request of the Court of Appeal.

OPINION

CROSBY, Acting Presiding Justice.

A telephone long distance carrier prevailed on fraud and conversion theories against Myron and Susan Bezenek--whose teenage sons ¹ employed computer technology in their efforts to crack plaintiff's access and authorization codes and make long distance phone calls without paying for them--garnering a judgment, including attorney fees, just shy of $50,000. Defendants challenge the court's determination that causes of action for fraud and conversion lie on these facts and complain of plaintiff's failure to mitigate and prove damages. They also contend that the court erred in calculating damages based on the company's own tariff on file with the Public Utilities Commission (PUC). Finally, defendants argue Civil Code section 1714.1 precludes damages based on conduct by a minor who is not their child and, in any event, limits damages to no more than $10,000.

I

Thrifty-Tel, Inc. provides long-distance telephone services. Subscribers' telephones are programmed with a confidential access code and a six-digit authorization code that directs calls into Thrifty-Tel's computerized switching network. ² An unauthorized user who knows both an access and an authorization code can make long-distance calls without being charged for them.

A friend of the Bezeneks' children knew a confidential Thrifty-Tel access code. During a three-day period in November 1991, Ryan, Gerry and some friends, using the Bezeneks' home computer and modem, gained entry into Thrifty-Tel's system with the code and conducted manual random searches for a six-digit authorization code. They made approximately 90 calls, consuming roughly 24 minutes of telephone time during the first two days. On the following day, Ryan and Gerry continued the search alone, making 72 manual attempts to identify an authorization code over an almost 16-minute period.

Through its internal security system, Thrifty-Tel learned of the computer hacking almost immediately. And by late November, the carrier identified the Bezeneks' home as the source. Although Thrifty-Tel had the Bezeneks' address and telephone numbers, it failed to contact them concerning the matter.

After a three-month hiatus, the Bezenek children resumed manual searches for an authorization code. After several days and apparently some frustration with the slow pace, Ryan acquired computer software to expedite the quest. On February 18, 1992, he used the program to access Thrifty-Tel's system and conducted rapid-fire random number searches. He ran the program between six and seven hours, generating over one thousand three-hundred calls. Because Thrifty-Tel is a small carrier with relatively few telephone lines, Ryan's automated calling overburdened the system, denying some subscribers access to phones lines.

Still, Thrifty-Tel did not contact or complain to the Bezeneks. Instead, it filed this action on April 1, 1992, seeking damages for conversion, fraud, and reasonable value of services. The April Fools' Day lawsuit provided the Bezeneks' first notice of their sons' computer hijinks. In a trial to the court, defendants unsuccessfully sought judgment on the conversion and fraud causes of action, arguing those remedies were not available on these facts. (Code Civ. Proc., § 631.8.)

Thrifty-Tel offered no explanation for its failure to complain to the Bezeneks after the November 1991 hacking episode. It presented no evidence of any actual losses, either. Rather, plaintiff simply relied on the "unauthorized usage" tariff in its PUC-approved rate schedule to establish damages. That tariff, in effect, liquidates Thrifty-Tel's damages for computer hacking by imposing a $2,880 per day surcharge, a $3,000 "set up fee," and a $200 per hour labor fee. It also provides for attorney fees and costs incurred to collect the tariff. ³ Based upon this tariff, the trial court awarded plaintiff $33,720 in damages and nearly $14,000 in attorney fees and costs.

II

Defendants first contend the unauthorized use of confidential codes to gain computer access does not give rise to a cause of action for conversion. They rely on the historical underpinnings of the tort, which provided a remedy for the loss of intangible property interest, but only if those interests are reflected in something tangible that can be physically taken. (Moore v. Regents of the University of California (1990) 51 Cal.3d 120, 134, 271 Cal.Rptr. 146, 793 P.2d 479.) For example, the value of a stock certificate is not the cost of the paper, but the intangible interest it represents. When the certificate is stolen or placed in another's name without the owner's permission, the value of the loss is not the cost of the paper--a tangible--but the worth of the stock--an intangible. (Payne v. Elliot (1880) 54 Cal. 339.) Similarly, an individual who misappropriates a floppy disk which contains trade secrets, protected formulas, or customer lists can be liable for conversion. And the damages are the value of the information on the disk, not the de minimis price of the disk. (See, e.g., Prosser and Keeton on Torts (5th ed.1984) § 15, pp. 91-92 and Schneider v. Union Oil Company of California (1970) 6 Cal.App.3d 987, 993, 86 Cal.Rptr. 315.)

Courts have traditionally refused to recognize as conversion the unauthorized taking of intangible interests that are not merged with, or reflected in, something tangible. (Adkins v. Model Laundry Co. (1928) 92 Cal.App. 575, 583, 268 P. 939 [business goodwill]; Olschewski v. Hudson (1927) 87 Cal.App. 282, 286-288, 262 P. 43 [competitor's customer route]; Faircloth v. A.L. Williams & Associates (1992) 206 Ga.App. 764, 426 S.E.2d 601, 604-605 [unpaid commissions not evidenced by a receipt or certificate]; Matzan v. Eastman Kodak Co. (1987) 134 A.D.2d 863, 521 N.Y.S.2d 917, 918 [no protected interest in an idea].) And Dean Prosser has cautioned against scuttling conversion's tangibility requirement altogether, recommending instead the use of other remedies to protect intangible interests. (Prosser, supra, § 15, p. 92.) ⁴

Whether the intangible computer access code, which was never reduced to paper or reflected on a computer disk, and the tie-up of Thrifty-Tel's system could be the subjects of conversion presents an issue of first impression in California--and apparently most everywhere else as well. ⁵ However, it is not necessary to resolve the question because the evidence supports the verdict on a trespass theory.

This very point was argued in the trial court, where defense counsel essentially conceded Ryan and Gerry trespassed, but maintained the mislabeling of the cause of action as one for conversion was fatal. Not so: "It has long been recognized that this court has the power to modify the conclusion of the court below, where the record supports it." (Fredericks v. Filbert Co. (1987) 189 Cal.App.3d 272, 279, 234 Cal.Rptr. 395.) Thrifty-Tel pleaded and proved a claim for trespass to personal property, and the defendants are properly liable under that label.

Trespass to chattel, although seldom employed as a tort theory in California (indeed, there is nary a mention of the tort in Witkin's Summary of California Law), lies where an intentional interference with the possession of personal property has proximately caused injury. ⁶ (See, e.g., Itano v. Colonial Yacht Anchorage (1968) 267 Cal.App.2d 84, 90, 72 Cal.Rptr. 823.) Prosser notes trespass to chattel has evolved considerably from its original common law application--concerning the asportation of another's tangible property--to include even the unauthorized use of personal property: "Its chief importance now," according to Prosser, "is that there may be recovery ... for interferences with the possession of chattels which are not sufficiently important to be classed as conversion, and so to compel the defendant to pay the full value of the thing with which he has interfered. Trespass to chattels survives today, in other words, largely as a little brother of conversion." ⁷ (Prosser, supra, § 14, pp. 85-86; see also Zaslow v. Kroenert (1946) 29 Cal.2d 541, 551, 176 P.2d 1 ["Where the conduct complained of does not amount to a substantial interference with possession or the right thereto, but consists of intermeddling with or use of ... the personal property, the owner has a cause of action for trespass" to chattel, but not for conversion].) ⁸

III

Plaintiff's cyber-fraud cause of action also applies a hoary common law theory to computer-age facts. The Bezeneks maintain they cannot be liable for fraud because the computer machinations did not constitute a misrepresentation and there was no evidence of reliance by Thrifty-Tel. Au contraire, asserts plaintiff: Ryan and Gerry's use of the confidential access code was the legal equivalent of a misrepresentation that they were authorized users of its services, and plaintiff relied to its detriment on that misrepresentation when its computer automatically granted them access to the network. Plaintiff's point is well taken.

A misrepresentation need not be oral; it may be implied by conduct. (See, e.g., Universal By-Products, Inc. v. City of Modesto (1974) 43 Cal.App.3d 145, 151, 117 Cal.Rptr. 525 and Prosser, supra, § 106, p. 736.) We are aware of no decision holding the unauthorized use of a telephone access code constitutes misrepresentation....