National Surety Corp. v. Applied Systems, Inc.

Citation: 418 So. 2d 847Docket: 80-400, 80-402

Court: Supreme Court of Alabama; August 27, 1982; Alabama; State Supreme Court

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Max G. Coffey and Robert S. Sawyer were found liable for converting property belonging to Applied Systems, Inc., resulting in National Surety Corporation being held accountable under an indemnity bond. Applied Systems was founded in 1972 by W. E. Greer to provide specialized computer services, and Coffey and Sawyer were employees who later established their own company, Data Plus, Inc., taking former clients with them shortly after leaving Applied Systems. In response, Applied Systems obtained a restraining order and filed for damages, claiming conversion of computer tapes and programs. The case was consolidated with a suit against National Surety for fraudulent acts by Coffey and Sawyer. The jury ruled in favor of Applied Systems, awarding $25,000 against Coffey, Sawyer, and Data Plus, and the same amount against National Surety, while also granting National Surety $25,000 from Coffey and Sawyer. The appellants argued that the conversion claim was improperly submitted to the jury, asserting that computer programs are not subject to conversion or that no tangible property was taken. Alabama law defines conversion through wrongful taking, illegal assumption of ownership, illegal use, or wrongful detention, with only the latter requiring proof of a demand for return.

Sufficient evidence supported the judge's decision to submit the case to the jury regarding the alleged wrongful taking or misuse of computer programs by Mr. Coffey and his associates. Testimony revealed that a customer returned to Applied Systems after previously using Data Plus, leading to the discovery that Applied Systems lacked necessary programs and files. Shortly after, Mr. Coffey was found with Honeywell employees at Applied Systems, where computer parts were present, suggesting potential misuse of parts from Applied Systems' computer for a similar setup being prepared for Data Plus. Expert testimony indicated that creating the relevant software programs would require extensive manpower, implying that the programs were likely copied for operational use in the timeframe in question.

The court addressed the argument that Mr. Coffey could not be liable for conversion since he developed the programs while at Applied Systems. It concluded that, despite his development role, he had no property rights in the programs, which were owned by Applied Systems. The assertion that conversion applies solely to tangible property was countered by references to statutes and case law indicating that both tangible and intangible personal property can be subject to conversion. Although a previous case distinguished software from tangible property for taxation purposes, the current case did not face that limitation. The jury could reasonably conclude that either tapes were converted and copied or that only the programs were taken, with both scenarios supporting the case for conversion.

Alabama's Criminal Code defines 'property' to include both tangible and intangible personal property, supporting the view that such property can be subject to both theft and conversion. The court acknowledges the appellants' claim that computer programs lack copyright or patent protection but asserts that other property interests warrant protection, especially given the necessity of software improvements for technological advancement. The development of software is costly and time-consuming, and without a revenue model, companies may hesitate to invest in new programs. The growing interest in proprietary software packages indicates a need for protection to avoid duplication and inefficiency in program development. 

Regarding the jury's decision, the court found no error in allowing the conversion claim to proceed, as sufficient evidence supported the damages awarded: Richardson valued the programs at $99,000, while Greer reported $120,000 in development costs. The appellants contested being held liable twice for the same wrongdoing, but the court clarified that National Surety could only pursue reimbursement from Coffey and Sawyer after compensating Applied Systems, which holds a $25,000 judgment against them. The judgment was affirmed, confirming that Applied Systems is entitled to collect a single award of $25,000, despite initial confusion over the verdicts. An error in referencing Data Plus in the verdict was corrected, and the original opinion was extended and clarified.