NEW U.S. JUDGE DECIDES ILL. WOULD OK TORT CLAIM FOR 'STOLEN' TV SIGNALS

June 23, 2004

Steven P. Garmisa
Hoey & Farina Attorney
garmisa@hoeyfarina.com
1-888-425-1212

What is becoming a tradition for new federal judges in the Northern District of Illinois is having to figure out how the Illinois Supreme Court would rule on conversion claims involving intangible property.

When Mark R. Filip was sworn in recently as a district judge for the Northern District of Illinois, the score was 5-3 in cases alleging claims for conversion of television satellite signals under Illinois common law. Judges John W. Darrah, James B. Zagel, Joan Humphrey Lefkow, Amy J. St. Eve and David H. Coar ruled that the Illinois Supreme Court would not authorize conversion claims involving intangible property, while Chief Judge Charles P. Kocoras and Judges Marvin E. Aspen and Milton I. Shadur reached the opposite conclusion.

Narrowing the split, Filip concluded that Illinois common law would approve using the tort of conversion to protect intangible property. DirecTV v. Ostrowksi, No. 03 C 8618 (N.D. Ill., May 12).
Here are some highlights of Filip's opinion (with various omissions not noted in the quoted text):

"To state a claim for conversion, plaintiff must allege that (1) it has a right to the property; (2) it has an absolute an unconditional right to the immediate possession of the property; (3) it made a demand for possession; and (4) defendant wrongfully and without authorization assumed control, dominion or ownership over the property.

"[T]he issue of whether alleged unauthorized interception and display of satellite programming meets the elements of civil conversion under Illinois law has divided courts within this district.
"Five courts within this district have held that the tort of conversion does not lie in these circumstances.

"Three courts have ruled that a cause of action was stated in similar cases.

"As demonstrated by this division, the issue is a close one for which strong arguments have been made in support of both sides.
"The difficulty in this area derives from the lack of Illinois case law directly on point and the somewhat unresolved nature of the Illinois case law that does exist.

"One Illinois Supreme Court case, In re Thebus, 108 Ill.2d 255 (1985), contains the following language: 'In 18 Am.Jur.2d Conversion, section 9, at 164 (1965), it is stated: "It is ordinarily held ... that an action for conversion lies only for personal property which is tangible, or at least represented by or connected with something tangible." '

"The court then went on to state that 'the subject of conversion is required to be an identifiable object of property of which the plaintiff was wrongfully deprived.'

"With these statements, Thebus does not by itself make clear whether intangible property ever can properly be the subject of conversion in Illinois or, if so, in what circumstances.

"Three subsequent Illinois Appellate Court decisions have indicated that intangible property can, at least in some cases, be the basis of a conversion action.

"In Conant v. Karris, 165 Ill.App.3d 783 (5th Dist. 1987), the court did not use the term 'intangible property,' but it nonetheless held that a conversion action was stated where plaintiff alleged that a real estate broker learned a client's confidential information about the valuation of a specific property and then used the information to generate the broker's own competing and successful bid for the property.

"However, the tangible versus intangible property issue appears to not have been squarely litigated, as the principal issue before the court of appeals (which reversed the trial court's dismissal of the count) was whether the plaintiff was deprived of the use of his confidential information, given that he always retained a copy of it himself.

"Oftentimes decisions that resolve an issue without it being the subject of a direct adversarial clash before the court are not viewed as being entitled to significant precedential weight on that point.

"Nonetheless, Conant takes on added weight because in Stathis v. Geldermann Inc., 295 Ill.App.3d 844 (1st Dist. 1998), another Illinois Appellate Court relied on Conant to flatly assert that, 'In this state ... parties may recover for conversion of intangible assets.' Moreover, Stathis reached this conclusion in the process of rejecting the defendants' argument that plaintiff was precluded from asserting 'a claim for conversion because the assets allegedly converted were intangible in nature.'

"Further, Stathis assumed for purposes of argument that the conversion of a controlling interest in a partnership could be legally cognizable -- although Stathis found that the jury verdict rejecting the conversion theory was not against the manifest weight of the evidence, so the verdict was upheld.

"The third Illinois Appellate Court case to address the subject in the wake of Thebus, Bilut v. Northwestern University, 296 Ill.App.3d 42 (1st Dist. 1998), stated that the Illinois 'Supreme Court has stated that an action for conversion lies only for personal property that is tangible or at least represented by or connected with something tangible.'

"Although Bilut barred the asserted conversion cause of action on statute of limitations grounds, Bilut stated that alleged plagiarism of the ideas in a research paper could be the subject of a conversion action 'because the printed copy of the research constituted tangible property.'

"The courts in this district holding that a conversion action properly can be maintained to remedy interception and use of satellite programming have concluded that the existing Illinois Appellate Court authority supports this view. In particular, these courts have analogized the deprivation of the right of the plaintiff in Conant to keep its information confidential with the deprivation of the 'right of exclusive control' plaintiff was deprived of with respect to its satellite programming.

"The courts holding that a conversion claim is not cognizable in these circumstances, in contrast, have distinguished the Illinois Appellate Court cases on grounds that '[i]n every Illinois conversion case involving intangible property, the plaintiff has been deprived of the ability to benefit from the object of the alleged conversion.' In this case, DirecTV continued to benefit from its encrypted satellite television signal.

"As noted above, there is no clear answer in the Illinois case law on this issue and both views have meaningful support. In the end, the court has cast its vote with the courts finding that the tort of conversion is available in cases such as this one.

"In large part, this conclusion results from the analysis of the tort of conversion and intangible property rights conducted by the [7th U.S. Circuit Court of Appeals] in FMC Corp. v. Capital Cities/ABC Inc., 915 F.2d 300 (7th Cir. 1990), another case that perhaps has escaped the parties' attention.

"At issue in FMC Corp. was whether the defendant was liable for conversion for failing to provide the plaintiff with either the originals or copies of documents containing plaintiff's confidential business information which the plaintiff had lost.

"Although the 7th Circuit resolved a threshold choice of law debate by deciding that the conversion issue should be analyzed under California law, the 7th Circuit stated that: 'We believe that the particular choice of law is not crucial in this case. While the facts of this case may present a novel question, our analysis does not. The same result would be reached under the conversion and replevin laws of most states. As one District Court recently noted, "The principles of what conduct constitutes conversion are universal." '

"The court held that the tort of conversion was sufficiently alleged.

"Of particular consequence for present purposes, in FMC Corp., the 7th Circuit stated that, 'As Prosser and Keeton have noted ...

"[t]here is perhaps no very valid and essential reason why there might not be conversion" of intangible property.' (quoting 'Prosser and Keeton on the Law of Torts,' ch. 3, 15, at 92).

"Further, the 7th Circuit cited Conant as an example of 'what appears to be the modern trend of state law in protecting against the misuse of confidential business information through conversion actions.' And the 7th Circuit gave no indication that the deprivation of such intangible property is cognizable in a conversion action only where the plaintiff is 'clearly deprived of the ability to obtain any benefit from the objects of the alleged conversions.'

"In fact, in one of the three cases the 7th Circuit cited as examples of the 'modern trend' toward protecting confidential business information through the tort of conversion, it is clear that the claimant was not denied the entire benefit of the converted property. See Datacomm Interface Inc. v. Computerworld Inc., 489 N.E.2d 185, 194 (Mass. 1986).

"In Datacomm, the claimant sought to impose liability on a competitor for its use of a copy of a magazine circulation list owned by the claimant. The claimant had its own copy of the list to use for circulation and marketing of its magazines. Nonetheless, the Massachusetts Supreme Judicial Court held that the competitor could be held liable for conversion for its unlawful use of the claimant's circulation list.

"Additionally, in FMC Corp., the 7th Circuit explained that, 'For purposes of conversion, it is not the intent to steal or pilfer property that matters, but rather an intent to exercise a dominion or control over the goods which is in fact inconsistent with the plaintiff's rights.'

"While it cannot fairly be stated in the case sub judice that defendant is alleged to have completely deprived plaintiff of the ability to obtain any benefit from its satellite programming, it also cannot fairly be said that defendant's alleged unauthorized use of such programming was consistent with plaintiff's rights.

"Thus, under the general teachings concerning the tort of civil conversion articulated by the 7th Circuit in FMC Corp. -- which are particularly significant given the unresolved nature of Illinois law in this area, and which this court suspects would carry substantial weight with Illinois courts if they were deciding the precise issue sub judice -- it appears that plaintiff has stated a claim."

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