Virtual Conversion (in NY)

In a decision issued Thursday, Thyroff v. Nationwide Mut. Ins. Co., — N.E.2d —-, 2007 WL 844860 (N.Y.), 2007 N.Y. Slip Op. 02442, the NY Court of Appeals, the state’s highest court, responded to a question certified by the Second Circuit: “whether the common-law cause of action of conversion applies to certain electronic computer records and data.” And, 7-0, it says the answer is “yes” — expanding the tort to intangible property. (Not all courts agree.)

So next time you take those virtual gold pieces from some newbie avatar — New York says that's conversion.

More seriously, what remains to be determined about virtual item theft is whether the communal agreement to the game license and rules amounts to license or waiver. But I can see some game EULA's being re-written to make this clearer.

Key parts of the decision below:

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 & 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 N.Y. v. Seventh Regiment Fund, 98 N.Y.2d 249, 259 [2002], quoting Vigilant Ins. Co. of Am. v. Housing Auth. of City of El Paso, Tex., 87 N.Y.2d 36, 43 [1995]; see e.g. Colavito v. New York Organ Donor Network Inc., 8 NY3d 43, 49-50 [2006]; Industrial & Gen. Trust Ltd. v. Tod, 170 N.Y. 233, 245 [1902] ). Thus, the general rule was that “an action for conversion will not normally lie, when it involves intangible property” because there is no physical item that can be misappropriated ( Sporn v. MCA Records, 58 N.Y.2d 482, 489 [1983] ).

Despite this long-standing reluctance to expand conversion beyond the realm of tangible property, some courts determined that there was “no good reason for keeping up a distinction that arose wholly from that original peculiarity of the action” of trover (that an item had to be capable of being lost and found) and substituted a theory of conversion that covered “things represented by valuable papers, such as certificates of stock, promissory notes, and other papers of value” ( Ayres v. French, 41 Conn 142 [1874] ). This, in turn, led to the recognition that an intangible property right can be united with a tangible object for conversion purposes ( see Agar v. Orda, 264 N.Y. 248, 251 [1934]; Iglesias v. United States, 848 F.2d 362, 364 [2d Cir1988] ).

We have not previously had occasion to consider whether the common law should permit conversion for intangible property interests that do not strictly satisfy the merger test. Although some courts have adhered to the traditional rules of conversion ( see e.g. Allied Inv. Corp. v. Jasen, 354 Md 547, 562, 731 A.2d 957, 965 [1999] [interests in partnership and corporation]; Northeast Coating Tech. Inc. v. Vacuum Metallurgical Co., 684 A.2d 1322, 1324 [Me 1996] [interest in information contained in prospectus]; Montecalvo v. Mandarelli, 682 A.2d 918, 929 [RI 1996] [partnership interest] ), others have taken a more flexible view of conversion and held that the cause of action can embrace intangible property ( see e.g. Kremen v. Cohen, 337 F3d 1024, 1033-1034 [9th Cir2003] [internet domain name; applying California law]; Shmueli v. Cocoran Group, 9 Misc.3d 589, 594 [Sup Ct, N.Y. County, 2005] [computerized client/investor list]; see generally Town & Country Props. Inc. v. Riggins, 249 Va 387, 396-397, 457 S.E.2d 356, 363-364 [1995] [person’s name] ).

A variety of arguments have been made in support of expanding the scope of conversion. Some courts have decided that a theft of intangible property is a violation of the criminal law and should be civilly remediable ( see National Sur. Corp. v. Applied Syst. Inc., 418 So.2d at 850); that virtual documents can be made tangible “by the mere expedient of a printing key function” ( Shmueli v. Corcoran Group, 9 Misc.3d at 592); that a writing is a document whether it is read on the computer or printed on paper ( see Kremen v. Cohen, 325 F3d 1035, 1048 [9th Cir2003] [Kozinski, J., dissenting from certification] ); and that the expense of creating intangible, computerized information should be counterbalanced by the protection of an effective civil action ( see National Sur. Corp. v. Applied Sys. Inc., 418 So.2d at 850).

On the other hand, the primary argument for retaining the traditional boundaries of the tort is that it “seem[s] preferable to fashion other remedies, such as unfair competition, to protect people from having intangible values used and appropriated in unfair ways” (Prosser & Keeton, Torts § 15, at 92) …

“[I]t is the strength of the common law to respond, albeit cautiously and intelligently, to the demands of commonsense justice in an evolving society” ( Madden v. Creative Servs. Inc., 84 N.Y.2d 738, 744 [1995]; see Hymowitz v. Lilly & Co., 73 N.Y.2d 487, 507 [1989], cert denied 493 U.S. 944 [1989] ). That time has arrived. The reasons for creating the merger doctrine and departing from the strict common-law limitation of conversion inform our analysis. The expansion of conversion to encompass a different class of property, such as shares of stock, was motivated by “society’s growing dependence on intangibles” (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 at 498). It cannot be seriously disputed that society’s reliance on computers and electronic data is substantial, if not essential. Computers and digital information are ubiquitous and pervade all aspects of business, financial and personal communication activities. Indeed, this Opinion was drafted in electronic form, stored in a computer’s memory and disseminated to the Judges of this Court via email. We cannot conceive of any reason in law or logic why this process of virtual creation should be treated any differently from production by pen on paper or quill on parchment. A document stored on a computer hard drive has the same value as a paper document kept in a file cabinet.

The merger rule reflected the concept that intangible property interests could be converted only by exercising dominion over the paper document that represented that interest ( see Pierpoint v. Hoyt, 260 N.Y. at 29). Now, however, it is customary that stock ownership exclusively exists in electronic format. Because shares of stock can be transferred by mere computer entries, a thief can use a computer to access a person’s financial accounts and transfer the shares to an account controlled by the thief. Similarly, electronic documents and records stored on a computer can also be converted by simply pressing the delete button ( cf. Kremen v. Cohen, 337 F3d at 1034 [“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”] [emphasis omitted] ).

Furthermore, it generally is not the physical nature of a document that determines its worth, it is the information memorialized in the document that has intrinsic value. A manuscript of a novel has the same value whether it is saved in a computer’s memory or printed on paper. So too, the information that Thyroff allegedly stored on his leased computers in the form of electronic records of customer contacts and related data has value to him regardless of whether the format in which the information was stored was tangible or intangible. In the absence of a significant difference in the value of the information, the protections of the law should apply equally to both forms-physical and virtual.

In light of these considerations, we believe that the tort of conversion must keep pace with the contemporary realities of widespread computer use. We therefore answer the certified question in the affirmative and hold that the type of data that Nationwide allegedly took possession of-electronic records that were stored on a computer and were indistinguishable from printed documents-are subject to a claim of conversion in New York. Because this is the only type of intangible property at issue in this case, we do not consider whether any of the myriad other forms of virtual information should be protected by the tort.

Accordingly, the certified question should be answered in the affirmative.

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