Source: http://www.tomwbell.com/NetLaw/Ch06/Thrifty-Tel.html
Timestamp: 2019-04-26 11:44:21+00:00

Document:
A telephone long distance carrier prevailed on fraud and conversion theories against Myron and Susan Bezenek -- whose teenage sons employed computer technology in their efforts to crack plaintiff's access and authorization codes and make long distance phone calls without paying for them -- garnering a judgment, including attorney fees, just shy of $ 50,000. Defendants challenge the court's determination that causes of action for fraud and conversion lie on these facts and complain of plaintiff's failure to mitigate and prove damages.
Thrifty-Tel, Inc. provides long-distance telephone services. Subscribers' telephones are programmed with a confidential access code and a six-digit authorization code that directs calls into Thrifty-Tel's computerized switching network. An unauthorized user who knows both an access and an authorization code can make long-distance calls without being charged for them.
A friend of the Bezeneks' children knew a confidential Thrifty-Tel access code. During a three-day period in November 1991, Ryan, Gerry and some friends, using the Bezeneks' home computer and modem, gained entry into Thrifty-Tel's system with the code and conducted manual random searches for a six-digit authorization code. They made approximately 90 calls, consuming roughly 24 minutes of telephone time during the first two days. On the following day, Ryan and Gerry continued the search alone, making 72 manual attempts to identify an authorization code over an almost 16-minute period.
After a three-month hiatus, the Bezenek children resumed manual searches for an authorization code. After several days and apparently some frustration with the slow pace, Ryan acquired computer software to expedite the quest. On February 18, 1992, he used the program to access Thrifty-Tel's system and conducted rapid-fire random number searches. He ran the program between six and seven hours, generating over 1,300 calls. Because Thrifty-Tel is a small carrier with relatively few telephone lines, Ryan's automated calling overburdened the system, denying some subscribers access to phones lines.
Still, Thrifty-Tel did not contact or complain to the Bezeneks. Instead, it filed this action on April 1, 1992, seeking damages for conversion, fraud, and reasonable value of services. The April Fool's Day lawsuit provided the Bezeneks' first notice of their sons' computer hijinks. In a trial to the court, defendants unsuccessfully sought judgment on the conversion and fraud causes of action, arguing those remedies were not available on these facts.
Thrifty-Tel offered no explanation for its failure to complain to the Bezeneks after the November 1991 hacking episode. It presented no evidence of any actual losses, either. Rather, plaintiff simply relied on the "unauthorized usage" tariff in its PUC-approved rate schedule to establish damages. That tariff, in effect, liquidates Thrifty-Tel's damages for computer hacking by imposing a $ 2,880 per day surcharge, a $ 3,000 "set up fee," and a $ 200 per hour labor fee. It also provides for attorney fees and costs incurred to collect the tariff. Based upon this tariff, the trial court awarded plaintiff $ 33,720 in damages and nearly $ 14,000 in attorney fees and costs.
Defendants first contend the unauthorized use of confidential codes to gain computer access does not give rise to a cause of action for conversion. They rely on the historical underpinnings of the tort, which provided a remedy for the loss of intangible property interest, but only if those interests are reflected in something tangible that can be physically taken. For example, the value of a stock certificate is not the cost of the paper, but the intangible interest it represents. When the certificate is stolen or placed in another's name without the owner's permission, the value of the loss is not the cost of the paper -- a tangible -- but the worth of the stock -- an intangible. (Payne v. Elliot (1880) 54 Cal. 339.) Similarly, an individual who misappropriates a floppy disk which contains trade secrets, protected formulas, or customer lists can be liable for conversion. And the damages are the value of the information on the disk, not the de minimis price of the disk.
Whether the intangible computer access code, which was never reduced to paper or reflected on a computer disk, and the tie-up of Thrifty-Tel's system could be the subjects of conversion presents an issue of first impression in California -- and apparently most everywhere else as well. However, it is not necessary to resolve the question because the evidence supports the verdict on a trespass theory.
This very point was argued in the trial court, where defense counsel essentially conceded Ryan and Gerry trespassed, but maintained the mislabeling of the cause of action as one for conversion was fatal. Not so: "It has long been recognized that this court has the power to modify the conclusion of the court below, where the record supports it." (Fredericks v. Filbert Co. (1987) 189 Cal. App. 3d 272, 279, 234 Cal. Rptr. 395.) Thrifty-Tel pleaded and proved a claim for trespass to personal property, and the defendants are properly liable under that label.
6 At early common law, trespass required a physical touching of another's chattel or entry onto another's land. The modern rule recognizes an indirect touching or entry; e.g., dust particles from a cement plant that migrate onto another's real and personal property may give rise to trespass. (See Wilson v. Interlake Steel Co. (1982) 32 Cal. 3d 229, 232-233, 185 Cal. Rptr. 280, 649 P.2d 922; Roberts v. Permanente Corp. (1961) 188 Cal. App. 2d 526, 529, 10 Cal. Rptr. 519.) But the requirement of a tangible has been relaxed almost to the point of being discarded. Thus, some courts have held that microscopic particles (Bradley v. American Smelting and Refining Co. (Wash. 1985) 104 Wash. 2d 677, 709 P.2d 782, 788-789) or smoke (Ream v. Keen (Or. 1992) 314 Ore. 370, 838 P.2d 1073, 1075) may give rise to trespass. And the California Supreme Court has intimated migrating intangibles (e.g., sound waves) may result in a trespass, provided they do not simply impede an owner's use or enjoyment of property, but cause damage. (Wilson v. Interlake Steel Co., supra, 32 Cal. 3d at pp. 233-234.) In our view, the electronic signals generated by the Bezenek boys' activities were sufficiently tangible to support a trespass cause of action.

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