New York recognizes conversion claims based on intangible property, such as electronically stored information or trade secrets. But does a conversion claim exist when the theft of the intangible property does not deprive the rightful owner of unfettered access to the property (i.e., when the owner retains an original or accurate duplicate of the information)? This was the question presented to the Commercial Division recently in MLB Advanced Media, L.P. v. Big League Analysis, LLC. In that case, Justice Shirley Werner Kornreich held that a conversion claim is not available unless the plaintiff’s use of or access to the property is disturbed.
Misappropriation Without Deprivation
The claims in MLB Advanced Media arose from a failed business relationship between Big League Analysis, LLC (“Big League”) and several entities associated with Major League Baseball (the “MLB Parties”). Big League had been retained to develop youth-oriented baseball services on websites operated by the MLB Parties. Ultimately, the business relationship fell through, litigation ensued, and Big League asserted, inter alia, a counterclaim for conversion against the MLB Parties, alleging theft of its confidential business information.
The allegedly converted information consisted of a set of business documents contained in a binder. The binder was returned to Big League, however, the MLB Parties allegedly retained the information and used it to develop a competing product. Big League did not assert that its own access to the information was disturbed, but rather that the theft of the information itself constituted conversion. The MLB Parties moved to dismiss, arguing that interference with a plaintiff’s access to allegedly converted property was an essential element of conversion which was missing from Big League’s claim.
The Commercial Division began its analysis by setting forth the basic elements of conversion: “(1) plaintiff’s possessory right or interest in the property and (2) defendants’ dominion over the property or interference with it, in derogation of plaintiff’s rights.” The court further noted that “[i]t is now settled law that intangible property may be converted,” but observed that some “confusion” has arisen over application of the second element when intangible property is at issue.
To resolve this “arguably unsettled” question of whether a conversion claim requires interference with access to the stolen property, the court conducted a close analysis of Thyroff v. Nationwide Mutual Insurance Co. – a decision in which the Court of Appeals firmly established that conversion claims may arise from intangible property – and subsequent authority from the Appellate Division. As a foundation, in Thyroff the Court of Appeals included “‘to the exclusion of the owner’s rights’” in its recitation of the elements of the conversion claim. As Justice Kornreich noted, each subsequent analysis by the Appellate Division of conversion of intangible property included a discussion of the “exclusion of,” “with[olding],” or “bar[ring of] access to,” the respective plaintiff’s ability to use the allegedly converted information. Against this consistent reasoning from the Appellate Division, the court identified only a single contrary trial court decision. Justice Kornreich discounted this isolated decision relying on the analysis set forth in a more recent decision from the Commercial Division and emphasizing that the plaintiff in Thyroff had alleged a deprivation of his own access to the allegedly stolen computer files. Finally, the court noted, the Court of Appeals had held prior to Thyroff that “some exclusion of plaintiff from its right to access and exploit its property” is a required element of a conversion claim.
In light of this weight of authority, the Commercial Division concluded that “a conversion claim must be predicated on the plaintiff’s loss of its ability to exercise at least some of its ownership rights in the subject property.” Since Big League failed to allege any interference with its own right to use the allegedly converted confidential information, the court dismissed its conversion claims.
The holding in MLB Advanced Media places a significant limitation on the scope of conversion claims in the digital age—i.e, the need to allege that the owner’s ability to access the data involved has been impaired. Although the intangible property at issue in this case had been memorialized in a physical binder, the court’s rationale would apply to electronically stored information. Digital files can be easily stolen without any disturbance of the original owner’s access to the data, and, under the analysis in MLB Advanced Media, a conversion claim would not arise from such a theft.