Thyroff v. Nationwide Mut. Ins. Co.

• Decision Date: 22 March 2007
• Docket Number: 41.
• Parties: Louis E. THYROFF, Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

864 N.E.2d 1272

8 N.Y.3d 283

Louis E. THYROFF, Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY et al., Respondents.

41.

Court of Appeals of New York.

March 22, 2007.

William P. Tedards, Jr., of the District of Columbia bar, admitted pro hac vice, and Finucane and Hartzell, LLP, Pittsford (Leo G. Finucane of counsel), for appellant.

Bingham McCutchen LLP, Hartford, Connecticut (Ben M. Krowicki of counsel), for respondents.

OPINION OF THE COURT

GRAFFEO, J.

The United States Court of Appeals for the Second Circuit has certified a question to us that asks whether the common-law cause of action of conversion applies to certain electronic computer records and data. Based on the facts of this case, we hold that plaintiff may maintain a conversion claim.

I

Plaintiff Louis Thyroff was an insurance agent for defendant Nationwide Mutual Insurance Company. In 1988, the parties had entered into an Agent's Agreement that specified the terms of their business relationship. As part of the arrangement, Nationwide agreed to lease Thyroff computer hardware and software, referred to as the agency office-automation (AOA) system, to facilitate the collection and transfer of customer information to Nationwide. In addition to the entry of business data, Thyroff also used the AOA system for personal e-mails, correspondence and other data storage that pertained to his customers. On a daily basis, Nationwide would automatically upload all of the information from Thyroff's AOA system, including Thryoff's personal data, to its centralized computers.

The Agent's Agreement was terminable at will and, in September 2000, Thyroff received a letter from Nationwide informing him that his contract as an exclusive agent had been cancelled. The next day, Nationwide repossessed its AOA system and denied Thyroff further access to the computers and all electronic records and data. Consequently, Thyroff was unable to retrieve his customer information and other personal information that was stored on the computers.

Thyroff initiated an action against Nationwide in the United States District Court for the Western District of New York, asserting several causes of action, including a claim for the conversion of his business and personal information stored on the computer hard drives. In response to Nationwide's motion to dismiss, District Court held that the complaint failed to state a cause of action for conversion because Thyroff did not allege that Nationwide exercised dominion over the electronic data to his exclusion and it was undisputed that Nationwide owned the AOA system.¹

In his appeal to the United States Court of Appeals for the Second Circuit, Thyroff sought reinstatement of his conversion cause of action, along with other relief. Nationwide countered that a conversion claim cannot be based on the misappropriation of electronic records and data because New York does not recognize a cause of action for the conversion of intangible property. The Second Circuit determined that the issue was unresolved in New York and therefore certified the following question of law to this Court: is a claim for the conversion of electronic data cognizable under New York law?²

II

"The hand of history lies heavy upon the tort of conversion" (Prosser, The Nature of Conversion, 42 Cornell LQ 168, 169 [1957]). The "ancient doctrine" has gone through a great deal of evolution over time (Franks, Analyzing the Urge to Merge: Conversion of Intangible Property and the Merger Doctrine in the Wake of Kremen v. Cohen, 42 Hous. L. Rev. 489, 495 and n. 32 [Summer 2005]), dating back to the Norman Conquest of England in 1066 (see Ames, The History of Trover, 11 Harv. L. Rev. 277, 278 [1897] [hereinafter Ames]).

Before the English royal government undertook the prosecution of crime, redress for the tortious or criminal misappropriation of chattels was limited to private actions, such as "the recuperatory appeals of robbery or larceny" available to persons whose property had been stolen (id. at 278).³ In general, these appeals took two forms. If a thief was immediately apprehended while in possession of the stolen goods, the wrongdoer "was straightaway put to death [by the court], without a hearing, and the [victim] recovered his goods" (id.). In other cases, rightful ownership of the property was usually determined by a "wager of battle"—a physical altercation or duel between the victim and the thief (see Black's Law Dictionary 1544 [8th ed. 2004]), with the victor taking title to the goods (see Ames, 11 Harv. L. Rev. at 279). Because this "remedy" could lead to a thief killing or maiming the chattel's owner and taking legal ownership of the stolen property, it was "widely detested" by the populace (Black's Law Dictionary 1544).

Over time, the practice of trial by jury was instituted and wager of battle steadily lost favor (see Ames, 11 Harv. L. Rev. at 279-280).⁴ Contributing to its demise at the end of the 12th century was the advent of criminal prosecutions by the Crown. But successful prosecution by the government could result in forfeiture of the stolen chattels to the King rather than the return of property to its rightful owner—an unwelcome prospect for the victim of a theft.

The appeals of robbery and larceny also failed to provide an adequate remedy because a victim could not seek monetary damages from the thief—the only remedy was return of the stolen property. By 1252, a new cause of action—trespass de bonis asportatis⁵ —was introduced. It allowed a plaintiff to obtain pecuniary damages for certain misappropriations of property and, following a favorable jury verdict, the sale of the defendant's property to pay a plaintiff the value of the stolen goods.⁶ If, however, the defendant offered to return the property to its rightful owner, the owner had to accept it and "recovery was limited to the damages he had sustained through his loss of possession, or through harm to the chattel, which were usually considerably less than its value" (Prosser, The Nature of Conversion, 42 Cornell LQ at 170).

In the late 15th century, the common law was extended to "fill the gap left by the action of trespass" (Prosser and Keeton, Torts § 15, at 89 [5th ed.]) by providing a more comprehensive remedy in cases where a defendant's interference with property rights was so serious that it went beyond mere trespass to a conversion of the property (see Prosser, 42 Cornell LQ at 169). Known as "trover," this cause of action was aimed at a person who had found goods and refused to return them to the title owner, and was premised on the theory that:

"the defendant, by `converting' the chattel to his own use, had appropriated the plaintiff's rights, for which he was required to make compensation. The plaintiff was therefore not required to accept the chattel when it was tendered back to him; and he recovered as his damages the full value of the chattel at the time and place of the conversion. . . . The effect was that the defendant was compelled, because of his wrongful appropriation, to buy the chattel at a forced sale, of which the action of trover was the judicial instrument" (id. at 170).

An action for trover originally could not be invoked by a person who did not lose personal property or have a right to immediate possession of the property (see Restatement [Second] of Torts § 222A, Comments a, b; Ames, 11 Harv. L. Rev. at 277). Because of the advantages that trover afforded over older forms of relief, its use was stretched to cover additional misappropriations, including thefts (see Prosser, 42 Cornell LQ at 169; Restatement [Second] of Torts § 222A, Comment a).

Trover gave way slowly to the tort of conversion, which was created to address "some interferences with chattels for which the action of trover would not lie," such as a claim dealing with a right of future possession (Restatement [Second] of Torts § 222A, Comment b). The technical differences between trover and conversion eventually disappeared. 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" (id. § 222A [1]).

III

As history reveals, the common law has evolved to broaden the remedies available for the misappropriation of personal property. As the concept of summary execution and wager of battle became incompatible with emerging societal values, the law changed. Similarly, the courts became willing to consider new species of personal property eligible for conversion actions.

Conversion and its common-law antecedents were directed against interferences with or misappropriation of "goods" that were tangible, personal property. This was consistent with the original notions associated with the appeals of robbery and larceny, trespass and trover because tangible property could be lost or stolen (see Prosser and Keeton, Torts § 15, at 90). By contrast, real property and all manner of intangible rights could not be "lost or found" in the eyes of the law and were not therefore subject to an action for trover or conversion (see id. at 91).

Under this traditional construct, conversion was viewed as "the `unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights'" (State of New York v. Seventh Regiment Fund, 98 N.Y.2d 249, 259, 746 N.Y.S.2d 637, 774 N.E.2d 702 [2002], quoting Vigilant Ins. Co. of Am. v. Housing Auth. of City of El Paso, Tex., 87 N.Y.2d 36, 44, 637 N.Y.S.2d 342, 660 N.E.2d 1121 [1995]; see e.g. Colavito v. New York Organ Donor Network, Inc., 8 N.Y.3d 43, 49-50, 827 N.Y.S.2d 96, 860 N.E.2d 713 [2006]; Industrial & Gen. Trust, Ltd. v. Tod, 170 N.Y. 233, 245, 63 N.E. 285 [1902]). Thus, the general rule was that "an action for conversion will not normally lie, when it involves intangible property" because...