United States: A Common-Sense Approach To Conversion In Digital Age

This article by partner Harvey Wolkoff and associates Kait O'Connor and David Coriell was published by  Law360 on October 30, 2017.

Before the onset of the digital age, important personal and business files were all physical documents, printed on paper and stored in desks and filing cabinets. If those documents were taken by an unauthorized third person, an individual or business could bring a claim of conversion seeking return of the documents, or damages. Today, "documents" increasingly exist only in electronic form, stored on computers or in the cloud. This change from physical to electronic file storage has strained the application of the tort of conversion, which traditionally could be brought only for "tangible" property.

Courts have recently begun to grapple with whether or not electronic data satisfy conversion's "tangibility" requirement. State and federal courts in Massachusetts in particular have openly struggled with whether to extend such claims to electronic data. Some years ago, for example, the First Circuit Court of Appeals observed that it was "debatable" whether Massachusetts's conversion law could apply to electronic data.1 But in a recent case, Children's Hospital Corp. v. Cakir,2 a federal district court unambiguously held that, for purposes of conversion, electronically stored computer files are no different from paper files. The district court applied a functional, common-sense approach, and made clear that conversion provided a recourse for owners of electronic data that is destroyed or stolen.

The Cakir Dispute

In Children's Hospital Corp. v. Cakir, a former hospital employee, Isin Cakir, took a hospital-issued and owned laptop with him when he left the hospital's employ. Cakir made a copy of the laptop data for himself, deleted certain files from the laptop, and then eventually returned the laptop to the hospital. When the hospital demanded that Cakir provide the copy of the laptop data, he refused.3 The hospital sued for conversion and replevin. In defending against the claims, Cakir argued that computer files are "intangible" property that cannot be converted. The hospital countered that conversion can lie for computer files, notwithstanding their nonphysical nature, because computer files are analogous to paper files, which can be converted.4 Thus, a crucial issue for the court was whether the "tangibility" requirement precludes a plaintiff from bringing a conversion claim for electronic data.

The "Tangibility" Requirement

Courts, including in Massachusetts, adhere to the general rule that conversion only applies to "tangible" property.5 In cases involving intellectual property, this rule makes sense. A defendant that infringes on a plaintiff's copyright does not deny the plaintiff the use of the copyrighted idea, just exclusive use.6 Conversion, however, protects a plaintiff from serious interference with the right of control (i.e., use) of the property.7

What then to make of electronic data, like the files at issue in Cakir? In a formalistic sense, electronic data is "intangible" because it is not physical. But in a functional sense, the owner of electronic data can be deprived of its use when the data is deleted, modified, or withheld. Consequently, courts within the First Circuit and elsewhere have struggled with what conversion's "tangibility" requirement means in the context of stolen electronic files.

Some courts have declined to apply conversion to electronic files at all because it is "beyond [conversion's] traditional application to chattels."8 Such a formalistic approach equates tangibility with physicality; because electronic data are not physical, they are not tangible, and conversion does not lie. But this approach fails to appreciate the underlying purpose of conversion. Unlike intellectual property, a defendant can completely deprive the owner of electronic data both access and use. An employee who deletes files from a work computer, for example, prevents his or her employer from using those files.9

A formalistic approach also fails to acknowledge that conversion has evolved over time to cover other types of unforeseen "intangible" personal property.10 For example, conversion now applies to stolen shares of stock. Courts have reasoned that, although an investor's shares of stocks are intangible, they become tangible when "merged" into a physical object, like a stock certificate.11 Thus, some courts have applied the merger doctrine to conversion cases involving electronic data.12 In Portfolioscope, Judge Joseph Tauro of the District of Massachusetts allowed a conversion claim for software code to survive a motion to dismiss because the defendant was allegedly "in wrongful possession of tangible copies of software and code through its possession of disks, tapes, and drives."13

But in the context of electronic data, the merger doctrine becomes overly complicated and leads to inconsistent results. For example, had the defendant in Portfolioscope stolen the software code from the "cloud," the plaintiff would be without a conversion claim, because the data did not "merge" into a physical item like a hard drive.14 Moreover, by relying on the merger doctrine, courts must confront technical questions about how electronic file storage works.

Clarity Emerges From the Cakir Ruling

In the midst of these various approaches to applying conversion to electronic data, Judge Denise Casper's decision in Cakir offers a simple solution. In granting summary judgment to the hospital, Judge Casper explained: "Just as Cakir would be liable for conversion ... if he had taken a book from Children's Hospital, ripped out the pages, and then returned the book, so he is liable for conversion because he took the Laptop from Children's Hospital, deleted data from it, and then returned it."15 By recognizing that, in today's world, computer files take the place of paper ones, the court avoided delving into the technicalities of electronic data storage. The holding comports with the overall purpose of conversion, and with common sense,16 placing the owner of stolen computer data in the same position as the owner of stolen paper documents containing.

The decision in Cakir applied similar reasoning of an earlier Massachusetts Superior Court decision, Network Systems Architects Corp. v. Dimitruk,17 and is consistent with the trend in other jurisdictions. California was an early pioneer when it held that a plaintiff could maintain a conversion action predicated on the dispossession of an internet domain.18 The New York Court of Appeals similarly concluded that there is no real distinction between computer data and paper files justifying denying a conversion claim.19 A smattering of other jurisdictions have also recognized conversion for computer data.20

But that does not mean the challenge is over. Parties will constantly seek to distinguish "new" technologies and argue that the functional approach does not apply to them. For example, a Massachusetts state court recently had to confront the issue of whether or not conversion could apply to the metadata that accompanies electronic files, and suggested that metadata may be distinct for other electronic files that can be converted.21 Courts would do well in these types of situations to look for the analogous physical version of a technology, and determine whether conversion would apply to that. For example, despite the new name, metadata is not a new concept. It tracks the identity of the authors of a document and when they made their contributions, akin to the stamps in a library book that track who checked out a book and when. If parties and courts cut through complicated technological terms, and look at the functional purpose of new technologies, clarity should emerge.

The court can then focus on the central question for a conversion case: Did the defendant wrongfully deprive the plaintiff of his property?

Footnotes

1. See In re TJX Cos. Retail Sec. Breach Litig., 564 F.3d 489, 499 (1st Cir. 2009).

2. No. 15-cv-13281-DJC, 2017 WL 4012661 (D. Mass. Sept. 12, 2017)

3. Id. at *2.

4. Id. at *4.

5. See, e.g., Blake v. Prof. Coin Grading Servs., 898 F. Supp. 2d 365, 386 (D. Mass. 2012). Conversion developed from the old tort of trover, which was a cause of action to recover lost property. To plead trover, a plaintiff was required to allege that he "casually lost [goods], that the defendant found them, and that the defendant 'converted them to his own use.'" The "lost and found" quality of trover necessarily required that the goods be "tangible" and moveable. The notion that an intangible item, such as an idea, could be "lost" would have been unfathomable to 19th century judges—they were clearly not contemplating bits and bytes stored in a cloud. As plaintiffs increasingly relied on trover to sue for stolen property, the courts discarded the notion that the property was "casually lost" and recognized a new cause of action: conversion. Although conversion eliminated the need to plead that property was lost, it retained the "tangible" requirement. See William L. Prosser, The Nature of Conversion, 42 Cornell L. Rev. 168, 169-70 (1957); see also J.B Ames, The History of Trover, 11 Harv. L. Rev. 277 (1897).

6. See Val D. Ricks, The Conversion of Intangible Property: Bursting the Ancient Trover Bottle with new Wine, BYU L. Rev. 1681, 1694 (1991). Massachusetts courts have consistently and properly declined to apply conversion to allegations of stolen intellectual property. See Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 161, (D. Mass. 2001); Jayson Assocs., Inc. v. United Parcel Serv. Co., 2004 WL 1576725, at *2 (D. Mass. July 15, 2004).

7. W. Page Keeton et al., Prosser and Keeton on Torts 93 (5th ed. 1984).

8. See Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 164 (D. Mass. 2001).

9. See, e.g., Mundy v. Decker, 1999 WL 14479 (Neb. Ct. App. Jan. 5, 1999).

10. See Keeton, supra note 7, at 91-92.

11. See Restatement (Second) of Torts § 242; Nick Ackerman, Conversion of E-Data, The National Law Journal (Oct. 1, 2007).

12. See Portfolioscope, Inc. v. I-Flex Solutions Ltd., 473 F. Supp. 2d 252, 256 (D. Mass. 2007); Sentient Jet, LLC v. Apollo Jets, LLC, 2014 WL 1004112, at *11 (D. Mass. Mar. 17, 2014)

13. Portfolioscope Ltd., 473 F. Supp. 2d at 256 (emphasis added).

14. See Caitlin J. Akins, Conversion of Digital Property: Protecting Consumers in the Age of Technology, 23 Loy. Consumer L. Rev. 215 (2010) (describing litigation against Amazon for deleting electronic books that customers had purchased for the Kindles).

15. Cakir, 2017 WL 4012661 at *4.

16. A leading torts treatise noted, "[t]here is perhaps no very valid and essential reason why there might not be conversion of ... 'any species of personal property which is the subject of private ownership." Keeton, supra note 7, at 92.

17. 23 Mass. L. Rptr. 339, 2007 WL 4442349, at *10 (Super Ct. Dec. 6, 2007) ("In the modern world, computer files hold the same place as physical documents have in the past. If paper documents can be converted, as they no doubt can, no reason appears that computer files cannot.").

18. Kremen v. Cohen, 325 F.3d 1024 (9th Cir. 2003); see also Courtney W. 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, 510-14 (2005).

19. Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283, 291-92 (2007). In Thyroff, the Court of Appeals explicitly refused to rely on the merger doctrine. The court reasoned that "[a] manuscript of a novel has the same value whether it is saved in a computer's memory or printed on paper." Id. at 292. Because of "the contemporary realities of widespread computer use," it was necessary for allow conversion to cover electronic records. Id.

20. See, e.g., Emke v. Compana, LLC, 2007 WL 2781661 (N.D. Tex. 2007); In re Paige, 413 B.R. 882 (Bankr. D. Utah 2009); Superior Edge, Inc. v. Monsanto Co., 44 F. Supp. 3d 890 (D. Minn. 2014 (applying Missouri law); E.I. DuPont de Nemours and Co. v. Kolon Indus., Inc., 688 F. Supp. 2d 443 (E.D. Va. 2009).

21. Children's Hosp. Corp. v. Cabi, 1584-CV-03103- BLS2, 2016 WL 4089555 (Mass. Super. June 24, 2016).

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