In Thyroff v. Nationwide Mutual Insurance Company, 864 N.E.2d 1272 (N.Y. 2007), the Court of Appeals of New York certified the question to the Second Circuit Court of Appeals whether New York recognizes a cause of action of conversion for intangible electronic records that are stored on a computer. Thyroff was an insurance agent for Nationwide and as part of his Agent's Agreement, Nationwide leased him a computer and software to facilitate the collection and transfer of customer information to Nationwide. In addition to the entry of business data, Thyroff used the computer for personal e-mails, correspondence and other data storage that pertained to his customers. Each day, the software from Nationwide automatically would upload all of the information from Thyroff's computer, including Thryoff's personal data, to its centralized storage system. In September 2000, Thyroff received a letter from Nationwide informing him that his contract had been cancelled. The next day, Nationwide repossessed its computer and denied Thyroff further access to the electronic records and data contained therein. Thyroff was unable to retrieve the personal data and customer information that was stored on the computers. He filed a lawsuit which included a claim for conversion.
The ancient doctrine of conversion has gone through a great deal of change over the centuries. Historically, there were limited means of private redress for individuals whose property had been stolen. If a thief was immediately apprehended while in possession of the stolen goods, the wrongdoer might have been put to death by the authorities (without a hearing), and the victim returned his goods. In other cases, rightful ownership of the property was often determined by a "wager of battle" -- a physical altercation or duel between the victim and the thief.
More recently, the general rule was that an action for conversion did not exist when it involved intangible property because there was no physical item that could be stolen. As the significance of representative documentation increased, this rule was substituted with a theory of conversion that covered items represented by valuable papers, such as certificates of stock, promissory notes, and other papers of similar significance. This led to the recognition that an intangible property right could be linked with a tangible object for conversion purposes, or what is known as the merger rule. Still, the merger rule held to the constraint that intangible property interests could be converted only by exercising control over the paper document that represented that interest.
In Thyroff, the Court of Appeals examined the intent behind the merger rile and took the philosophical view that it generally is not the physical nature of a document that determines its worth; rather, it is the information memorialized in the document that has intrinsic value. For example, the manuscript of a novel has the same value whether it is printed on paper or saved on a computer; or the intangible property right to a musical performance can be merged into its master recording. Thyroff successfully argued that the value of the personal data and customer information was inherent to whatever form it resides, whether in print of on the memory of a computer. Under this logic, the Second Circuit Court of Appeals affirmed that New York recognizes a cause of action for conversion of personal information contained in computer data.
Richard Fama, a member in Cozen O’Connor’s Downtown New York office quipped that the New York Supreme Court might be well suited to the opening of a "wager of battle" Division. He felt that the Thyroff case is significant on two fronts. First, it signals the courts continued recognition of the need to bring the common law in line with the realities of digital world. Second, while the underlying case is undecided, it may serve as a warning sign for corporations. Rich cautions his clients to take care in drafting their employee manuals and termination procedures to ensure they properly address the maintenance of personal data on company systems -- the Thyroff decision could create a cause of action for a terminated employee to claim conversion should a company fail to return the personal data stored on its systems.
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