IP Law Daily, TRADE SECRETS—Ark. Sup. Ct.: Intangible, non-trade-secret property subject to conversion claims in Arkansas, (Jun 27, 2016)

By Mark Engstrom, J.D.

In response to a query from the U.S. District Court for the Eastern District of Virginia, the Arkansas Supreme Court has decided that intangible property such as electronic data—when standing alone and when not deemed a trade secret—could be the object of a common law conversion claim, under Arkansas law, if a defendant denied, or took actions that were inconsistent with, the rights of a property owner or a person who was entitled to possession (Integrated Direct Marketing, LLC v. May, June 23, 2016, Wynne, R.).

Data intelligence advisor Integrated Direct Marketing (IDM) sued a former employee for conversion, misappropriation of trade secrets, and other unlawful conduct. Regarding the conversion claim, the district court rejected the defendant’s arguments that: (1) the claim was preempted by the Arkansas Trade Secrets Act and (2) the record contained insufficient evidence of damages. Ultimately, the district court found that IDM failed to produce sufficient evidence to allow a reasonable jury to calculate, with reasonable certainty, the market value of its confidential or proprietary information.

However, actual damages were not an essential element of a conversion claim under Arkansas law, and for that reason, the district court denied the defendant’s motion for summary judgment of no conversion. The district court decided that, if a jury rendered a verdict in IDM’s favor on the conversion claim, IDM would be entitled to nominal damages and injunctive relief.

Nevertheless, the district court noted its reservations about whether electronic data could support a conversion claim under Arkansas law. The district court thus certified to the Arkansas Supreme Court the following question of law: whether, under Arkansas’s tort of conversion, intangible property such as electronic data—when standing alone and not deemed a trade secret—could be converted.

The Arkansas Supreme Court noted that conscious wrongdoing was not required for a conversion claim under Arkansas law. What was required was the intent to exercise dominion or control over the property of another. Further, Arkansas did not require owners (or persons who were entitled to possession) to be completely deprived of their property before a conversion claim could attach. According to the Court, conversion occurred when a defendant exercised dominion over property in violation of, or in a way that was inconsistent with, the rights of a plaintiff (i.e., the owner or person entitled to possession).

Because controlling precedent did not exist on the issue that was certified, the Arkansas Supreme Court looked to other jurisdictions for guidance. In doing so, the High Court acknowledged that many other jurisdictions had declined to extend the tort of conversion to intangible property that had not been merged into a tangible document. Nevertheless, the Court did not find those decisions to be persuasive.

At issue in this case were IDM’s electronically stored documents. According to the High Court, there is "simply no reasonable basis for allowing a claim for conversion of paper documents but not for their electronically stored counterparts." The Court thus concluded that, under Arkansas law, intangible property such as electronic data—when standing alone and not deemed a trade secret—could be converted if the actions of a defendant denied, or were inconsistent with, the rights of the property owner (or the person who was entitled to possession).

The case is No. CV-15-944.

Attorneys: Timothy C. Hutchinson (Reece Moore Pendergraft LLP) and Jeremy Y. Hutchinson (Steel, Wright & Collier, PLLC) for Integrated Direct Marketing LLC. Robert S. Shafer (Friday, Eldredge & Clark, LLP) for Drew May.

Companies: Integrated Direct Marketing, LLC

Cases: TradeSecrets TechnologyInternet ArkansasNews