Does Contract or Tort Law Protect an Agent/Lessee's Electronic Data?

Under New York law, is a claim of conversion cognizable for electronic data? Yesterday, the Second Circuit Court of Appeals held that it isn’t clear under New York law, and certified the question to New York's highest court. The Second Circuit also held that no rational trier of fact could conclude that an insurance company owed a contractual obligation to a former agent not to seize policyholder information a computer that the agent leased from the company.

Plaintiff Louis Thyroff was associated with Nationwide Mutual Insurance Company (“Nationwide”) as an insurance agent for 21 years.  When the relationship began in 1988, Thyroff and Nationwide entered into an Agent’s Agreement, which provided a non-compete clause that allowed competition only if certain enumerated requirements were met. Thryoff was also required to lease an agency-automation system, which consisted of hardware and software from Nationwide. Thyroff relied on this system to keep track of customer data.

In September of 2000, Nationwide sent Thyroff a letter canceling the Agent’s Agreement. The following day, without notice, Nationwide denied Thryoff access to the agency-automation system, and all his client files contained therein.

Thryoff sued Nationwide for (1) conversion of the personal and business data contained on the computer and (2) breach of contract for depriving him of access to business information necessary to compete once the Agency’s Agreement expired. In an unpublished opinion, the District Court dismissed the conversion claim and granted Nationwide summary judgment on the breach of contract claim. Thyroff appealed to the Second Circuit. 

In what is perhaps the most interesting aspect of the case (and has much less to do with contract law), the Second Circuit has certified the following question to the New York Court of Appeals: Is a claim of conversion cognizable for electronic data?

In addition, the Second Circuit affirmed the grant of summary judgment to Nationwide on Thyroff’s breach of contract claim. Thryoff asserted that Nationwide owed a contractual obligation not to seize policyholder information from the leased computer without first providing Thyroff with an opportunity to duplicate it. Thryoff attempted to cobble together this duty by pointing to (1) a section of his Agent’s Agreement that allowed him to compete if certain requirements were met and (2) the implied covenant of good faith and fair dealing. The Second Circuit interpreted the non-compete provision to allow Thryoff to compete in certain situations, but did not interpret it as requiring Nationwide to provide Thryoff with a means to compete. The court determined that “despite Thyroff’s evidence that Nationwide may have acted in bad faith in the manner in which it removed the policyholder information from Thryoff’s possession, no rational trier of fact could conclude that in so doing Nationwide violated any provision of the contract." The court held that the Agent’s Agreement, coupled with the implied covenant of good faith, could not be read to impose any affirmative obligation on Nationwide. 

Thryoff v. Nationwide Mutual Ins. Co., __ F.3d __ (2d Cir. Aug. 21, 2006).

[Meredith R. Miller]