Judicial Council of California Issues Opinion in Hector Casillas Vs. Berkshire Hathaway Homestate Insurance Case

SACRAMENTO, California, June 10 (TNSsro) -- The Judicial Council of California issued the following opinion (No. B302442):

* * *

In the Court of Appeal of the State of California, Second Appellate District, Division Four

HECTOR CASILLAS, et al., Plaintiffs and Appellants, v. BERKSHIRE HATHAWAY HOMESTATE INSURANCE COMPANY, et al., Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los Angeles County, David S. Cunningham III, Judge. Affirmed.

Green & Noblin, Robert S. Green, James Robert Noblin, and Emrah M. Sumer; Law Offices of Mark Ravis & Associates, Mark Ravis and David Martin, for Plaintiffs and Appellants.

Gibson, Dunn & Crutcher, Deborah L. Stein, Jeremy S. Smith and Wesley Sze, for Defendants and Respondents Berkshire Hathaway Homestate Insurance Company and Cypress Insurance Company.

Proskauer Rose, Lary Alan Rappaport and Jessica M. Griffith, for Defendant and Respondent Zenith Insurance Company.

Manning & Kass, Ellrod, Ramirez, Trester and Dennis B. Kass, for Defendant and Respondent Oliver Glover.

Freeman Mathis & Gary and Stephen M. Caine, for Defendant and Respondent William Reynolds.

INTRODUCTION

The elements of the tort of trespass to chattels include "injury to the plaintiff's personal property or legal interest therein." (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348, 1350-1351 (Intel).) In this opinion, we hold appellants Hector Casillas and Adela Gonzalez failed to plead facts satisfying this element in alleging that respondents -- three insurance companies and two investigators -- copied appellants' electronic litigation files from a third-party computer system, in violation of appellants' interests in privacy and confidentiality. We conclude appellants failed to allege any actionable injury because: (1) they did not allege damage or disruption to the computer system, as required by Intel; and (2) in any event, they did not allege injury to the copied files or their asserted property interests therein.

According to appellants, respondents Berkshire Hathaway Homestate Insurance Company (Berkshire), Cypress Insurance Company (Cypress), Zenith Insurance Company (Zenith), William Reynolds, and Oliver Glover conspired to "hack" a third-party computer system. At the direction of the insurance-company respondents, Reynolds and Glover allegedly copied thousands of electronic litigation files, which had been uploaded to the system by workers' compensation and personal injury attorneys and their clients (including appellants), and transmitted the copies to insurers and insurance defense law firms for use in litigation. Appellants first sued respondents in federal district court on various causes of action, including invasion of privacy. After abandoning their invasion-of-privacy claim, they added a claim of trespass to chattels, which the district court dismissed without addressing the merits.

Appellants then filed the instant trespass-to-chattels claim, to which respondents demurred. The trial court sustained respondents' demurrers, concluding appellants failed to state a trespass-to-chattels claim because, inter alia, they did not allege any damage or disruption to the computer system from which the files were copied, as the court concluded was required under Intel, supra, 30 Cal.4th 1342. The court granted appellants leave to amend their complaint, but appellants declined to do so, instead electing to appeal the judgment subsequently entered on the demurrers.

On appeal, appellants contend the court erred in sustaining respondents' demurrers to their claim of trespass to chattels. As indicated above and explained in more detail below, we agree with the trial court that appellants failed to state a claim. Accordingly, we affirm.

BACKGROUND

A. Respondents' Copying of Electronic Files

We take the following facts from the allegations of appellants' complaint, which we must assume true on this appeal: HQSU Sign Up Services, Inc. owned the "'HQSU system,'" comprising computer servers, a database housed on those servers, and a website through which the database was accessible. Attorneys for workers' compensation and personal injury plaintiffs contracted with HQSU to provide administrative services for certain clients, including appellants. HQSU presented each new client with a blank in-take packet, in which the client entered "medical, financial and legal information." HQSU uploaded the completed packet to HQSU's database, in a file associated with the client's counsel. Counsel used HQSU's website to download the in-take packet, then created and uploaded "documents that would be typical in a litigation file, such as correspondence, memos to file, research memos, etc." As the client's case proceeded, the file was updated by counsel, counsel's staff, and the client, all of whom could use HQSU's website to download or post comments on existing documents, and upload revised or additional documents. The website and file contained "password and privacy notifications," because the file was "intended" to be available only to counsel, counsel's staff, and the client, following verification of username and password.

Respondents conspired to "hack" the files on the HQSU system. At the direction of respondents Berkshire, Cypress, and Zenith, respondents Reynolds and Glover "repeatedly launched what are known as directory traversal attacks. A directory traversal attack is a[n] HTTP exploit allowing hackers to access restricted directories and execute commands outside of the web server's root directory." By means of these directory traversal attacks, conducted almost daily for 15 months, Reynolds and Glover copied approximately 33,000 litigation files, including appellants', from the HQSU system. They transmitted the copies to insurers and insurance defense law firms. Although the copying "was not done in connection with any particular litigation," certain copied documents were later used in defense of workers' compensation claims.

B. Appellants' Claim of Trespass to Chattels

In 2015 and 2016, appellants separately filed complaints against respondents in federal district court, containing causes of action for, inter alia, invasion of privacy. Without specifically addressing the invasion-of-privacy claim, the district court dismissed all of appellants' claims for failure to adequately allege standing to sue in federal court, and granted leave to amend. (Casillas v. Berkshire Hathaway Homestate Cos. (C.D.Cal. Aug. 22, 2016, No. CV 15-4763 AG (JEMx)) 2016 U.S.Dist.LEXIS 184127, at *6-*8.) Abandoning their invasion-of-privacy claim, appellants amended their federal complaints to include other claims, including a trespass-to-chattels claim under California law. The district court dismissed the complaints without addressing the merits of the trespass-to-chattels claim. (See Casillas v. Berkshire Hathaway Homestate Cos. (C.D.Cal. June 27, 2017, No. CV 15-04763 AG (JEMx)) 2017 U.S.Dist.LEXIS 99549, at *8-*12 [dismissing appellants' sole remaining federal law claim on the merits, and declining to exercise supplemental jurisdiction over state law claims], affd. (9th Cir. 2019) 770 Fed.Appx. 329.)

Soon thereafter (in July 2017), appellants filed the instant complaint, which contained a cause of action for trespass to chattels./1

Appellants alleged respondents "intentionally interfered with Plaintiffs' information in their litigation files hosted by HQSU on its database and servers and the documents they, their counsel, and counsel's staff caused to be uploaded to the HQSU database and servers by obtaining that information from those files and those documents and then wrongfully using them for their own purposes." They further alleged they suffered a number of harms: (1) "Their personal property interest in the information in the files, the files themselves, the documents used to generate those files, and the documents contained in those files were violated when accessed by others not entitled to access them and then made available for use against them in a court of law or administrative claims process"; (2) "Their right to privacy, including the right to privacy enshrined in Article 1 of the California Constitution, was and continues to be violated"; and (3) "Their attorney-client and work product privileges for communications with their counsel in their workers' compensation proceeding, the first of which is a right personal to them, was breached."/2

Appellants sought compensatory damages and injunctive relief.

C. Judgment on Respondents' Demurrers

In November 2017, respondents demurred to the complaint./3

Relying on Intel, supra, 30 Cal.4th 1342, respondents argued appellants failed to state a trespass-tochattels claim because they did not allege any damage or disruption to the computer system from which the electronic files were copied. Respondent Glover additionally argued that the claim failed because (1) the copied information was not property; and (2) appellants failed to allege any injury to their asserted property interests in the information, instead complaining of injury to their privacy interests. In December 2017, appellants filed an opposition to the demurrers, and respondents filed replies (none of these briefs are in the record). The trial court stayed the case pending resolution of appellants' appeal from the dismissal of their federal complaints; the stay was lifted in May 2019.

In July 2019, the court issued a tentative ruling sustaining the demurrers with leave to amend, and held a hearing. Appellants conceded respondents had not damaged the HQSU system, corrupted the files they allegedly copied from the system, or impaired appellants' access to the files.

Appellants argued they nevertheless suffered actionable harm, viz., the "loss of privacy and confidentiality" caused by respondent's viewing and copying the files. They further argued Intel did not require them to allege damage or disruption to the HQSU system, because their claim concerned trespass to the files, not the system. Respondents' counsel maintained that appellants' failure to allege damage or disruption to the HQSU system was fatal under Intel.

Adopting its tentative ruling, the court concluded appellants had failed to state a claim of trespass to chattels. The court agreed with respondents that the claim failed under Intel: "[P]ursuant to Intel, a plaintiff alleging trespass to chattels based on unauthorized access to a computer system must allege damage or disruption to that computer system. Here, Plaintiffs have not done so." The court rejected appellants' attempt to distinguish Intel:

"Plaintiffs argue that Intel does not control here, because the facts of Intel did not include unauthorized access to a computer system or downloading of files. . . . [

] However, as Demurring Defendants note, the Intel court reached its holding by examining those cases involving robotic data collection, which did involve copying electronic information. See, e.g., eBay, Inc. v. Bidder's Edge, Inc. (N.D. Cal. 2000) 100 F.Supp.2d 1058 [(eBay)]; Register.com, Inc. v. Verio, Inc. (S.D.N.Y. 2000) 126 F.Supp.2d 238 [(Register)]; Ticketmaster Corp. v. Tickets.com, Inc. (C.D. Cal., Aug. 10, 2000, Case No. 99CV7654) 2000 WL 1887522 [(Ticketmaster)]. . . . [

] Subsequent cases have applied Intel to instances of alleged hacking, similar to Plaintiffs' allegations here. See, e.g., Capitol Audio Access, Inc. v. Umemoio (E.D. Cal. 2013) 980 F.Supp. 2d 1154, 1160 [(Capitol Audio)] (dismissing a trespass to chattel claim where the plaintiff alleged the defendant had accessed a password protected, proprietary database without authorization); Vertkin v. Vertkin (N.D. Cal. Dec. 6, 2007) 2007 WL 4287512, at *3 [(Vertkin)] (dismissing a trespass to chattel claim where the plaintiff alleged that the defendant had installed keystroke recording software onto the plaintiff's computer 'in order to obtain personal information' without authorization). [

] None of Plaintiffs' authorities support the proposition that an actionable trespass to chattel claim exists when an alleged tortfeasor neither damages nor impairs a plaintiff's computer system."

The court sustained the demurrers with leave to amend./4

In August 2019, appellants filed notice that they declined to amend their complaint. They stipulated to entry of judgment on the demurrers, which they timely appealed.

* * *

Footnotes:

1/ We need not address the other cause of action contained in appellants' complaint, viz., a claim for violation of the Confidentiality of Medical Information Act, Civil Code section 56 et seq., to which the trial court also sustained a demurrer with leave to amend, as appellants raise no issue concerning it.

2/ Appellants alleged several other related harms based on respondents' obtaining the information in the copied files, including: (1) violation of their statutory rights to privacy of medical information; (2) undermining of their "right to assistance of counsel in civil matters," as well as their "faith in the integrity and fairness of the civil justice system"; and (3) unspecified costs incurred in taking steps to mitigate risks that the copied information might be used against them, including by "at least consider[ing]" settling their underlying litigation on unfavorable terms, and by taking unspecified protective measures against identity theft. We need not address these alleged harms, as appellants develop no argument concerning them.

3/ Respondents Reynolds and Glover each filed separate demurrers, while respondents Berkshire, Cypress, and Zenith filed a joint demurrer.

4/ As an additional ground for sustaining the demurrers to the trespass-to-chattels claim, the court concluded appellants failed to adequately allege they had any cognizable property interest in either the HQSU system or the information in the copied files. In defending the court's ruling on appeal, respondents argue that "[m]ost fundamentally," appellants failed to allege any injury to such a property interest. Because we agree, we need not address whether appellants adequately alleged they had such a property interest in the first instance.

* * *

View full opinion at https://www.courts.ca.gov/opinions/documents/B302442.PDF

* * *

Original text here: https://www.courts.ca.gov/opinions/documents/B302442.PDF