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The Ninth Circuit’s Broad (and Wrong) Standards for Conversion–Taylor v. Google (Guest Blog Post)

by Kieran McCarthy

Recently, there has been a revival of anemic trespass to chattels claims in California. And so perhaps we should not be surprised that California courts have opened the door to a resurgence in anemic digital conversion claims, as well.

If Taylor v. Google is any indication, that door is now very much ajar.

On February 28th, the Ninth Circuit held that plaintiffs had properly pleaded a conversion claim against Google because Google’s passive data transfers of cellular data had behaved in a way that was inconsistent with the plaintiffs’ property interests. In so doing, they reversed the district court that had previously held that cellular device users’ data allowances under their contracts with cellular service providers did not constitute “property” subject to conversion. The district court ruled that the right of access was defined by their contracts with carriers, and so “cellular data” was a contractual right, not a property right.

There are a few things worth breaking down here. First, this seems to be a significant expansion of the definition of intangible property; Second, this blurs the line between property and contract claims in an area of law that already has lots of problems separating the two; Three, by opening up conversion claims for usage/misappropriation of minuscule quanta of digital data, it seems to undercut the serious and substantial threshold requirement for the tort of conversion.

Expansion of the Definition of Digital Property

It is far from settled law that digital property claims can give rise to conversion claims. Many courts, including the District of Columbia, have rejected the expansion of conversion claims to intangible property, except in limited circumstances where the property represents or “merges with” a tangible item, such as a paper document.

In the Ninth Circuit, the most important case to open the door to a broader category of conversion claims was Kremen v. Cohen from 2003, which held that under California law, an internet domain name was a form of intangible property that could serve as basis for the registrant’s conversion claim. In so doing, the court rejected the strict merger requirement of the Restatement of Torts that most states still adhere to for conversion claims.

While cellular data and domain names are both intangible, this is the first case to categorize cellular data as property capable of exclusive control. It’s not obvious that cellular data is property. And to call it such invites others to categorize other not-so-obvious intangible items as “property” as well.

Blurring the Line Between Contract and Property

The district court rejected the plaintiffs’ conversion claim on the basis that the rights associated with cellular data were defined by the plaintiffs’ contracts with their carriers. As such, to the extent that there is a grievance here, it should be based in contract, not in property.

The appellate court rejected this argument without bothering to argue it.

Cellular data is also capable of exclusive possession or control. It can be “valued, bought and sold,” Kremen, 337 F.3d at 1030; users may transfer their interest in cellular data through mobile hotspots; and the right to transmit cellular data over a cellular network is by its nature restricted to the user, G.S. Rasmussen, 958 F.2d at 903. In addition, the manner in which a user’s exclusive interest in cellular data vests is analogous to that in the utilities context. As is the case for utilities, the user’s claim to exclusive possession or control of cellular data vests when the user causes “an actual diversion and beneficial use of the [data]” by using the cellular network’s bandwidth to make data transfers. See Inyo Consol. Water Co. v. Jess, 119 P. 934, 936 (Cal. 1911); see also Terrace Water Co. v. San Antonio Light & Power Co., 82 P. 562, 563 (Cal. 1905).

It is a hard to know how to categorize valuable, intangible items that are resources in the digital age. But in this instance, cellular data was entirely defined and valued pursuant to the terms of a series of contracts. And the Ninth Circuit ignored that, even though the district court found it dispositive. To ignore such a critical fact when defining cellular data as property means that the Ninth Circuit glossed over and ignored the most complex and important legal question in this case.

Lots of intangible items have value and are bought and sold, but they aren’t traditionally treated as property under the law.

For example, consultants and lawyers charge for their time. And they value and sell it through contracts. Does that make a lawyer’s time property? Not according to our current legal understanding of property rights. And that’s almost certainly a good thing.

If we define property as expansively as the Ninth Circuit has here, lots of things that we don’t think of as property can be labeled as property subject to conversion. And that’s almost certainly a bad thing.

Many online legal domains blur the line between property and contract. We don’t need another.

Mark Lemley observed this nearly twenty years ago, but if you allow private parties to define property rights through contracts, it takes the job of defining property out of the hands of the law and subject to the whims of the preferences of private parties. And since most contracts these days are contracts of adhesion with no room for negotiation, with token forms of notice and consent, that can lead to a parade of horrible second-order negative effects.

Minuscule Quanta of Data and the Serious and Substantial Requirements of Conversion

One of the things that makes conversion a hard tort to plead is that it requires a serious diminution of value of the property where the proper remedy is reimbursement for the total value of the property.

Here, the plaintiffs describe the property that was taken as “capable of exclusive possession and control because it represents a unique quantum of energy that, once used, is gone.”

This is a clever argument because it gets around the substantiality threshold that makes conversion a hard tort to plead.

More than twenty years, the Supreme Court of California explained the relationship between trespass to chattels and conversion in the seminal Internet law case, Intel v. Hamidi:

Dubbed by Prosser the “little brother of conversion,” the tort of trespass to chattels allows recovery for interferences with possession of personal property “not sufficiently important to be classed as conversion, and so to compel the defendant to pay the full value of the thing with which he has interfered.” (Prosser & Keeton, Torts (5th ed.1984) § 14, pp. 85–86.)

Though not amounting to conversion, the defendant’s interference must, to be actionable, have caused some injury to the chattel or to the plaintiff’s rights in it. Under California law, trespass to chattels “lies where an intentional interference with the possession of personal property has proximately *1351 caused injury.” (Thrifty–Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1566, 54 Cal.Rptr.2d 468, italics added.) In cases of interference with possession of personal property not amounting to conversion, “the owner has a cause of action for trespass or case, and may recover only the actual damages suffered by reason of the impairment of the property or the loss of its use.” (Zaslow v. Kroenert, supra, 29 Cal.2d at p. 551, 176 P.2d 1, italics added; accord, Jordan v. Talbot (1961) 55 Cal.2d 597, 610, 12 Cal.Rptr. 488, 361 P.2d 20.) In modern American law generally, “[t]respass remains as an occasional remedy for minor interferences, resulting in some damage, but not sufficiently serious or sufficiently important to amount to the greater tort” of conversion. (Prosser & Keeton, Torts, supra, § 15, p. 90, italics added.)

Intel Corporation v. Hamidi, 30 Cal.4th 1342, 1 Cal.Rptr.3d 32, 71 P.3d 296 (2003).

In sum, trespass to chattels is a lesser intermeddling with the personal property of another, and conversion is a much more serious interference with the personal property of another, where the proper remedy is recovery of the full value of the thing that has been interfered with.

That said, the primary holding of Intel v. Hamidi, the seminal case on trespass to chattels, was that the “tort of trespass to chattels did not encompass electronic communications that neither damaged the recipient computer system nor impaired its functioning.”

A fortiori, the tort of conversion should not encompass online conduct that doesn’t damage a computer system or impair its functioning.

But if the property that is interfered with can be subdivided into minuscule “quanta” and then reaggregated through a class action, then the serious and substantial requirements of the conversion tort can be circumvented, because minuscule quanta have been converted in their entirely. With this clever rearticulation of what is lost, trivial losses of property that should not meet the lower threshold for trespass to chattels, all of the sudden become serious and substantial enough to meet the more rigorous requirements for a conversion claim.

In this instance, I don’t know how much data was passively transferred by Google to give rise to this action, but it was small enough that almost nobody noticed. My first reaction to this case was that surely that meant it wasn’t serious or substantial enough to give rise to a conversion claim. But plaintiffs appear to have succeeded with this workaround.

Conclusion

One thing the Ninth Circuit got right with this opinion was classifying this case as “not appropriate for publication and [] not precedent except as provided by Ninth Circuit Rule 36-3.”

That is the case’s saving grace. But whether this is officially precedent or not, this line of thinking will be delicious chum for plaintiff’s lawyers.

* * *

Eric’s Comment: Cellphone plans often advertise they are “unlimited,” but many Internet access contracts cap the total available amount of data the subscriber can transit. (At home, I’m on one of Comcast’s 1.2T/month plans). For users subject to a capped plan (and how would a sender know if they are or are not?), the opinion suggests that every time anyone shares packets with these users on the Internet, they consume a portion of the capped amount of available data and thus checked off a key prerequisite for conversion. It’s a crazy outcome, and I sure hope that’s not the law.

The post The Ninth Circuit’s Broad (and Wrong) Standards for Conversion–Taylor v. Google (Guest Blog Post) appeared first on Technology & Marketing Law Blog.

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