Groundbreaking Ruling Allows Claim for
Conversion of Cloud-Based Data To Go To Trial
The Honorable Robert W. Sweet of the United States District Court in the Southern District of New York denied a motion to dismiss several claims in a lawsuit involving a Weisermazars LLP subsidiary’s appropriation of a former employee’s cloud-based data management service. The ruling advances the law of New York State to allow a claim for conversion of cloud-based data — in layman’s language, the “theft” of proprietary data — to go before a jury.
In Schatzki v. Weiser Capital Management, LLC, 10-cv-04685-RWS-DCF, financial planner Debra Schatzki alleges that after firing her, Weiser Capital Management LLC (WCM) changed the password to her “SmartOffice” database, thereby cutting her off from her clients. Lawler Mahon & Rooney LLP, which represents Schatzki and her company BPP Wealth Management, subsequently filed a lawsuit against Weisermazars LLP and WCM, alleging, among other things, conversion of her “SmartOffice” data.
In August 2011, Weisermazars LLP and WCM moved to dismiss Schatzki’s conversion claim. Denying this motion, Justice Sweet wrote that “there are genuine issues of material fact” about whether the defendants committed an act of conversion.
This decision suggests that the New York Court of Appeals’ landmark decision in Thyroff v. Nationwide Mutual Insurance Co., which recognized a claim for conversion of electronic data stored on a computer, also covers electronic records stored on cloud-based data management systems.
“The ramifications of this ruling are enormous,” notes James Mahon, a partner at Lawler Mahon & Rooney. “As more and more companies move their data to ‘Cloud Computing,’ the rights of propriety data will become an increasingly important issue that must be resolved in the courts.”
Schatzki and BPP Wealth Management, LLC are also seeking damages from Weisermazars LLP and WCM for civil conspiracy, breach of contract, and trademark infringement. The parties are still in discovery.
For more information, contact James Mahon of Lawler Mahon & Rooney at 212-584-2990.
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