Integrated Direct Mktg. Inc. v. May

Cite as 2016 Ark. 281
SUPREME COURT OF ARKANSAS
No. CV-15-944
Opinion Delivered: June 23, 2016
INTEGRATED DIRECT MARKETING,
LLC
PETITIONER
CERTIFIED QUESTION OF LAW
V. FROM THE UNITED STATES
DISTRICT COURT FOR THE
DREW MAY AND MERKLE, INC. EASTERN DISTRICT OF VIRGINIA,
RESPONDENTS ALEXANDRIA DIVISION
CERTIFIED QUESTION
ANSWERED.
ROBIN F. WYNNE, Associate Justice
On December 3, 2015, pursuant to Rule 6-8 of the Rules of the Supreme Court
and Court of Appeals of the State of Arkansas, this court accepted certification of the
following question of law:
Under Arkansas’s tort of conversion, can intangible property such as electronic data,
standing alone and not deemed a trade secret, be converted?
Integrated Direct Mktg., LLC v. May, 2015 Ark. 454 (per curiam). As explained below, we
answer this question in the affirmative.
According to its pleadings, petitioner Integrated Direct Marketing, LLC (IDM),
provides custom data solutions for corporations with large data, business intelligence,
analytics, customer-relationship management, sales, and multi-channel-marketing programs.
IDM advises its clients on all aspects of data intelligence, and its business involves selling
direct-marketing lists, plans, research, and marketing strategies, combining multiple sources
of external data and enhancing internal data using proprietary and confidential techniques.
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Respondent Drew May, a resident of Conway, Arkansas, worked for IDM at its Little Rock
office as an executive vice president for Data Integration from January 3, 2012, until his
termination on March 11, 2014. While employed by IDM, May executed a confidentiality
agreement. IDM alleges that May copied more than 300 files containing its confidential
and proprietary information to his personal external hard drive. In early May 2014, May
began working for respondent Merkle, Inc., a competitor of IDM, as a vice president and
client partner in the High Tech/B2B Vertical Markets Group.
IDM filed its first amended complaint against May and Merkle, Inc., in the United
States District Court for the Eastern District of Virginia, alleging breach of contract, breach
of fiduciary duty, conversion, violation of the Arkansas Trade Secrets Act (ATSA) and the
Virginia Uniform Trade Secrets Act, violation of the ATSA and the North Carolina Trade
Secrets Protection Act, intentional interference with business expectancies, and unjust
enrichment.1 Among other relief, IDM sought injunctive relief, compensatory and punitive
damages, and attorney’s fees. Both May and Merkle, Inc., filed motions for summary
judgment, which the federal district court granted on all claims except conversion.
Regarding the conversion claim, which is against May only, the court rejected May’s
arguments that the claim was preempted by the ATSA and that there was insufficient
evidence of damages. The court found that IDM had not produced sufficient evidence
from which a reasonable jury could calculate the market value of any of its confidential or
1
The breach-of-contract, breach-of-fiduciary-duty, conversion, and violation of the
ATSA and Virginia Uniform Trade Secrets Act claims were solely against May. The claims
for intentional interference with business expectancies and unjust enrichment were against
both May and Merkle. The claim for violation of the ATSA and North Carolina Trade
Secrets Protection Act were against Merkle only.
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proprietary information with reasonable certainty, but because actual damages are not an
essential element of conversion under Arkansas law, denied the motion for summary
judgment on this claim. The court held that IDM would be entitled only to nominal
damages and injunctive relief if a jury found in its favor on the conversion claim. However,
the court also noted its reservations that taking electronic data could support a claim for
conversion under Arkansas law. As noted above, the federal district court ultimately
certified the question whether, under Arkansas’s tort of conversion, intangible property such
as electronic data, standing alone and not deemed a trade secret, can be converted.
With regard to that question,2 this court has defined the tort of conversion as “the
exercise of dominion over property in violation of the rights of the owner or person entitled
to possession.” Car Transp. v. Garden Spot Distributors, 305 Ark. 82, 85–86, 805 S.W.2d
632, 634 (1991); see also Ford Motor Credit Co. v. Herring, 267 Ark. 201, 589 S.W.2d 584
(1979); Thomas v. Westbrook, 206 Ark. 841, 177 S.W.2d 931 (1944). Stated another way,
conversion is a common-law tort action for the wrongful possession or disposition of
another’s property; to establish liability for the tort of conversion, a plaintiff must prove that
the defendant wrongfully committed a distinct act of dominion over the property of
another, which is a denial of, or is inconsistent with, the owner’s rights. Hatchell v. Wren,
363 Ark. 107, 116–17, 211 S.W.3d 516, 521 (2005). Conscious wrongdoing is not the
2
The certified question expressly excludes trade secrets, and we reject May’s
argument that claims concerning electronic data are preempted by the ATSA even if the
data does not constitute a trade secret under the ATSA. We likewise are unpersuaded by
his argument that expansion of conversion to encompass the copying of electronic data,
standing alone, is preempted by the federal Copyright Act, 17 U.S.C. §§ 101 et seq. On
this record, it does not appear that any copyrighted material is at issue.
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requisite intent for conversion; what is required is the intent to exercise control or dominion
over goods. Car Transp. v. Garden Spot Distrib., 305 Ark. 82, 88, 805 S.W.2d 632, 635
(1991). Unlike some jurisdictions, Arkansas does not require that the owner or person
entitled to possession be completely deprived of their property in order for a conversion to
occur. Rather, conversion occurs if the defendant exercises dominion over property in
violation of, or in a way that is in denial of or inconsistent with, the rights of the owner or
person entitled to possession.
IDM points out that the earliest rigid limitations on the tort of conversion have been
almost uniformly rejected. See Restatement (Second) of Torts § 242 (1965). IDM further
contends that this court has previously ruled in Godwin v. Churchman, 305 Ark. 520, 810
S.W.2d 34 (1991), that electronic data can be converted. In that case, we merely held that
the complaint, which alleged that the defendants had taken tangible goods (furniture, paper
files) and copied diskettes, had stated a claim for conversion sufficient to survive a motion
to dismiss. On the other hand, May argues that we should be guided by Infinity Headwear
& Apparel, LLC v. Coughlin, 2014 Ark. App. 609, 447 S.W.3d 138, in which our court of
appeals stated, “To the extent [the appellant] asks us to create a new cause of action for the
conversion of electronic data, we decline to do so.” Id., at 8, 447 S.W.3d at 142-43.
Neither Godwin nor Infinity Headwear provides assistance in answering the present question.
Because we have no controlling precedent on this issue, we look to other
jurisdictions for guidance. IDM contends that this court should follow states such as New
York and California and hold that electronically stored data is property that can be
converted. In Thyroff v. Nationwide Mut. Ins. Co., 864 N.E.2d 1272, 1278 (N.Y. 2007), the
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court held that the type of data that Nationwide allegedly took possession of—electronic
records that were stored on a computer and were indistinguishable from printed
documents—is subject to a claim of conversion in New York. Similarly, in Kremen v. Cohen,
337 F.3d 1024 (9th Cir. 2003), the United States Court of Appeals for the Ninth Circuit
held that an Internet domain name is a form of intangible property that could serve as basis
for a conversion claim under California law. The Kremen court noted, “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.” Id. at 1034.3
We recognize that many jurisdictions have declined to extend the tort of conversion
to encompass intangible property that is not merged into a tangible document. See, e.g.,
Wells v. Chattanooga Bakery, Inc., 448 S.W.3d 381, 392 (Tenn. Ct. App. 2014) (“Conversion
is the wrongful appropriation of another’s tangible property; an action for the conversion of
intangible personal property is not recognized in Tennessee.”); Internal Med. All., LLC v.
Budell, 659 S.E.2d 668, 675 (Ga. Ct. App. 2008) (“Conversion is not available as a cause of
action with regard to intangible property interests that have not been merged into a
document.”). However, we do not find these decisions persuasive.
At issue in this case are IDM’s electronically stored documents. There is simply no
reasonable basis for allowing a claim for conversion of paper documents but not for their
3
In both Thyroff and Kremen, the plaintiffs claimed that they were completely
deprived of their property. While Arkansas law does not require complete deprivation for
conversion, it does require that the defendant take an action that is in denial of or
inconsistent with the rights of the owner.
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electronically stored counterparts. Thus, we conclude that, under Arkansas law, intangible
property, such as electronic data, standing alone and not deemed a trade secret, can be
converted if the actions of the defendant are in denial of or inconsistent with the rights of
the owner or person entitled to possession.
Certified question answered.
Reece Moore Pendergraft LLP, by: Timothy C. Hutchinson; Steel, Wright & Collier,
PLLC, by: Jeremy Y. Hutchinson, and Pedroli Law, LLC, by: Mark Pedroli, pro hac vice, for
petitioner.
Friday, Eldredge & Clark, LLP, by: Robert S. Shafer; and Protorae Law PLLC, by: James
B. Kinsel, Rebecca Bricken Segal, Michael E. Stamp, and Jennifer Lucey, pro hac vice, for
respondent Drew May.
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