2007-10-26 Another Discovery Category - Greynets

The Register.com posted an article today on the existence of illicit "conduits for malware" or
greynets" that proliferate through most enterprises today. These are technically (and typically) described as peer-to-peer applications, downloaded apps that connect direct to other users to exchange messages and/or data, (aka Instant Messaging, VoIP and filesharing applications) but greynet appears to be the emerging term de jure, and provides another wide-ranging category request type to be used in discovery.

2007-10-13 CFAA and Employment Agreements

In light of recent divergent decisional authority interpreting jurisdictional thresholds for Computer Fraud and Abuse Act ("CFAA" actions), it may be a good idea to add language to new and existing contracts of employment (and employee handbooks, where employment is "at will") to expressly articulate that any appropriation, access or use of employer information *during employment* is unauthorized and further that any such appropriation, access or use shall be deemed to cause damage in excess of $5000 (the CFAA jurisdictional amount). Upon-termination authority revocation and damages provisions should always be part and parcel of any such agreement. For existing employees, it's also a good idea to have executed a similar agreement supplement or handbook update.

2007-10-07 New Addresses on eDiscovery Avenue

In an article entitled "Securing Very Important Data - Your Own" appearing in the October 7, 2007 online edition of New York Times, the author gushes that users are "loving" to send out (the term "relinguishing" used in the article is telling) their personal, financial, credit card, telephone, social security, and other identity-specific data to service providers in exchange for financial management services. Notably, an offering called "Basecamp," described as a "powerful project management and collaboration tool" to store including "performance targets, to-do lists, files, collaborative documents, and messages" is alleged to claim more than one million users. Mint.com is another offering, described as having a "Swiss Army knife approach to personal financial management." In exchange for offering what appears to be every last drop of user information it can extract, Mint will offer users "specialized services" --- that will, on a nightly basis, connect to and update bank accounts, balance checkbooks, and even "shop" for better offering terms and rates on credit cards and other financial accounts.

Maybe these services are good, maybe not. Perhaps they are secure. Perhaps not. What they represent is a treasure trove of discoverable information.

Securing your very own data? Perhaps not.

2007-10-06 Conversion of Software is Actionable Under NY Law --- The tort of conversion of electronic information is actionable in New York.

"The Hand of History Lies Heavy Upon the Tort of Conversion"

In Thyroff v Nationwide Mutual Insurance Co., 493 F. 3d 109 (2d Cir. 2007) the U.S. Court of Appeals for the Second Circuit reversed its earlier decision affirming a dismissal (and also certifying a question to the New York Court of Appeals. Excerpt from the opinion (including the certified question, which the Court of Appeals Answers in the affirmative:

"Is a claim for the conversion of electronic data cognizable under New York law?" Thyroff, 460 F.3d at 408. On March 22, 2007, the New York Court of Appeals answered the certified question in the affirmative. See Thyroff, 8 N.Y.3d at 293, 832 N.Y.S.2d 873, 864 N.E.2d 1272. As we explained in our prior decision, "if a conversion claim may extend to electronic data, Thyroff has stated a claim sufficient to survive Nationwide's motion to dismiss for both his personal and business data." Thyroff, 460 F.3d at 405. Accordingly, based on the response from the New York Court of Appeals that electronic data may be the subject of a conversion claim under New York law, we vacate the district court's dismissal of Thyroff's conversion claim and remand for further proceedings." Thryroff, supra at 493 F. 3d at p. 109.

In New York, at least for the moment, a civil action for conversion of electronic data may be commenced. Under New York law, and unlike the CFAA, there is no jurisdictional damage minimum, and punitive damages may be sought by the aggrieved party. What remains unclear is whether, using the same analysis as in Thyroff, a criminal action for conversion may now be brought

The response by the New York State Court of Appeals to the question certified to it by the Second Circuit contains a short analysis of the history and evolution of conversion, trover and trespass to chattel, together with some impressive prose. Here, an extended excerpt:

"“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 **1274 ***875 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).FN3 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).
FN3. There were also “punitory appeals,” which, as the name connotes, were utilized solely for punishing thieves in situations where property stolen was of a certain value and could not be recovered (Ames, 11 Harv. L. Rev. at 278).Over time, the practice of trial by jury was instituted and wager of battle steadily lost favor ( see Ames, *287 11 Harv. L. Rev. at 279-280). FN4 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.
FN4. Wager of battle was not formally abolished in England until 1818 ( see Black's Law Dictionary 1544).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 asportatis FN5-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.FN6 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).
FN5. A Latin phrase meaning “trespass for carrying goods away” (Black's Law Dictionary 1542).
FN6. “Detinue,” a related cause of action, provided a similar remedy for the improper detention (as opposed to taking) of property ( see Ames, 11 Harv. L. Rev. at 375).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 **1275 ***876 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 *288 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] ).
IIIAs 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 *289 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 **1276 ***877 involves intangible property” because there is no physical item that can be misappropriated ( Sporn v. MCA Records, 58 N.Y.2d 482, 489, 462 N.Y.S.2d 413, 448 N.E.2d 1324 [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, 150, 151 [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, 190 N.E. 479 [1934]; Iglesias v. United States, 848 F.2d 362, 364 [2d Cir.1988] ).In Agar, which involved the conversion of intangible shares of stock, this Court applied the so-called “merger” doctrine because:“for practical purposes [the shares] are merged in stock certificates which are instrumentalities of trade and commerce.... Such certificates ‘are treated by business men as property for all practical purposes.’ ... Indeed, this court has held that the shares of stock are so completely merged in the certificate that conversion of the certificate may be treated as a conversion of the shares of stock represented by the certificate” (264 N.Y. at 251, 190 N.E. 479; see also Pierpoint v. Hoyt, 260 N.Y. 26, 28-29, 182 N.E. 235 [1932] ).More recently, we concluded that a plaintiff could maintain a cause of action for conversion where the defendant infringed on the plaintiff's intangible property right to a musical performance by misappropriating a master recording-a tangible item *290 of property capable of being physically taken ( see Sporn v. MCA Records, 58 N.Y.2d at 489, 462 N.Y.S.2d 413, 448 N.E.2d 1324).FN7
FN7. The Restatement (Second) of Torts reflects the “merger” theory as follows:“(1) Where there is conversion of a document in which intangible rights are merged, the damages include the value of such rights.“(2) One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted” (Restatement [Second] of Torts § 242).
IVWe 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., Ltd., 684 A.2d 1322, 1324 [Me.1996] [interest in information contained in prospectus]; Montecalvo v. Mandarelli, 682 A.2d 918, 929 [R.I.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 F.3d 1024, 1033-1034 [9th Cir.2003] [Internet domain name; applying California law]; Shmueli v. Corcoran Group, 9 Misc.3d 589, 594, 802 N.Y.S.2d 871 [Sup.Ct., N.Y. County 2005] [computerized client/investor list]; see generally **1277 ***878 Town & Country Props., Inc. v. Riggins, 249 Va. 387, 396-397, 457 S.E.2d 356, 363-364 [1995] [person's name] ).FN8
FN8. At least one court has approved of the use of conversion by referencing the merger doctrine ( see e.g. Astroworks, Inc. v. Astroexhibit, Inc., 257 F.Supp.2d 609, 618 [S.D.N.Y.2003] [conversion of idea that was represented by an Internet Web site] ). Conversion claims have also been approved without consideration of the historical limits of the cause of action ( see e.g. Cole v. Control Data Corp., 947 F.2d 313, 318 [8th Cir.1991] [computer software program]; Quincy Cablesystems, Inc. v. Sully's Bar, Inc., 650 F.Supp. 838, 848 [D.Mass.1986] [satellite cable signals]; Charter Hosp. of Mobile, Inc. v. Weinberg, 558 So.2d 909, 912 [Ala.1990] [addiction treatment program]; National Sur. Corp. v. Applied Sys., Inc., 418 So.2d 847, 850 [Ala.1982] [computer program]; Mundy v. Decker, 1999 WL 14479, *4, 1999 Neb App LEXIS 3, *10-12 [Ct.App.1999] [WordPerfect documents] ).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 *291 National Sur. Corp. v. Applied Sys., 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, 802 N.Y.S.2d 871); that a writing is a document whether it is read on the computer or printed on paper ( see Kremen v. Cohen, 325 F.3d 1035, 1048 [9th Cir.2003, 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 and Keeton, Torts § 15, at 92). Nonetheless, advocates of this view readily concede that “[t]here is perhaps no very valid and essential reason why there might not be conversion of” intangible property ( id. at 92) and that there is “very little practical importance whether the tort is called conversion, or a similar tort with another name” because “[i]n either case the recovery is for the full value of the intangible right so appropriated” (Restatement [Second] of Torts § 242, Comment e ). The lack of a compelling reason to prohibit conversion for redress of a misappropriation of intangible property underscores the need for reevaluating the appropriate application of conversion.

'V“[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., 84 N.Y.2d 738, 744, 622 N.Y.S.2d 478, 646 N.E.2d 780 [1995]; see Hymowitz v. Eli Lilly & Co., 73 N.Y.2d 487, 507, 541 N.Y.S.2d 941, 539 N.E.2d 1069 [1989], cert. denied 493 U.S. 944, 110 S.Ct. 350, 107 L.Ed.2d 338 [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 *292 ubiquitous and pervade**1278 ***879 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 e-mail. 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, 182 N.E. 235). 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 F.3d 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 *293 printed documents-is 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." Thyroff v Nationwide Mutual Ins. Co., 8 N.Y.3d 283, 864 N.E.2d 1272 (N.Y. 2007).


A good analysis of this decision (and a comparison with CFAA) appears in the October 1, 2007 edition of the National Law Journal.