N.Y. Court Rules in Electronic Records Conversion Case

Rhett Pardon
NEW YORK — The state Supreme Court last week, rejecting a company’s contention that it owned all information used on a former worker’s computer, has allowed a suit to go forward claiming that the documents were wrongfully retained.

The case, a landmark ruling in New York, establishes that common law recognizes a cause of action for conversion of electronic records, not just tangible documents. Conversion is the wrongful exclusionary retention of another’s property.

In its opinion, the court reasoned that other courts have grappled with the need to modernize the law of conversion in order to afford plaintiffs a just civil remedy in response to outright theft.

N.Y. Supreme Court Judge Herman Cahn cited the 9th U.S. Circuit Court of Appeals case that involved Sex.com operator Gary Kremen in his opinion in the New York case.

In Kremen vs. Cohen, 337 F3d 1024 (9th Circuit 2003), Steve Cohen was accused of stealing Kremen’s domain name by falsely informing the domain name registrar that Kremen abandoned the name, and then taking it for himself. The court reversed a U.S. District Court dismissal of plaintiff’s conversion claim on intangibility grounds.

That court later concluded that “Kremen’s domain name falls easily within this class of property…. That it is stored in electronic form rather than on ink and paper is immaterial.”

In the New York case decided last week, the court said the electronic documents do not become an “extinct vestige of the past” merely because of the intangible medium upon which the valuable information is recorded.

The case involved a real estate broker, who worked for the firm as an independent contractor and used the firm-provided computer to manage her personal database. The electronic documents in dispute consisted of detailed records of deals over the past 14 years, including hundreds of deals prior to and independent of her association with the brokerage.

When the firm later terminated her, it kept a hard copy of her client contacts as well as locked her out from accessing her electronic records.

She later sued for conversion, misappropriation of proprietary information and interference with prospective business relations, among other charges.

In seeking to dismiss the complaint, the real estate firm argued that the electronic records could not support a claim of conversion because they did not amount to tangible property. Not so, the court concluded.

The court also rejected the firm’s argument that it owned the information as a consequence of owning the computers used by the broker and denied the firm’s motion for summary judgment seeking dismissal of the conversion claim.

The ruling is Shmueli vs. Corcoran Group, No. 104824/03.