United States: Where Do Plaintiffs Stand On Data Breach Litigation?

Last Updated: July 7 2015
Article by Amy C. Purcell

Article III standing has been a data breach plaintiff's worst enemy (and, thus, a defendant's best friend). Courts have routinely dismissed data breach cases because plaintiffs cannot demonstrate that they have standing to bring claims against a company that suffered a data breach. Simply put, courts across many jurisdictions have subscribed to the proposition of "no harm, no foul." Despite this formidable obstacle, plaintiffs continue to pursue these types of claims.

Plaintiffs typically allege that, as a result of a data breach, they suffered injuries including an increased risk of identity theft or fraud, time and expenses incurred in efforts to mitigate the risk associated with identity theft or fraud, improper disclosure of their personal information and loss of privacy. Generally, to establish standing under Article III, a plaintiff must allege: (1) an injury in fact that is concrete and particularized, as well as actual and imminent; (2) that injury is fairly traceable to the challenged action of the defendant; and (3) that it is likely (not merely speculative) that injury will be redressed by a favorable decision. Historically, courts have found that data breach plaintiffs failed to meet this standard because the "possibility" of future harm was speculative.

In February 2013, the U.S. Supreme Court issued its decision in Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013). Although Clapper did not involve a data breach, it quickly became data breach defendants' most powerful argument in support of a motion to dismiss. In Clapper, the plaintiffs argued that because their work required them to communicate with individuals outside the United States, they suffered injury because there was an "objectively reasonable likelihood" that their communications would be acquired under the Foreign Intelligence Surveillance Act, and that they took costly steps to protect the confidentiality of their communications. The Supreme Court concluded that the plaintiffs' fears were "highly speculative" and based on a "highly attenuated" chain of possibilities that did not result in a "certainly impending" injury. The court further held that the plaintiffs could not "manufacture" standing based upon money spent to protect against hypothetical future harm.

Seizing upon this reasoning, defendants in courts all across the country began to analogize the situation in Clapper to a data breach. For example, in In re Barnes & Noble Pin Pad Litigation, Case No. 12-cv-8617 (N.D. Ill. Sept. 3, 2013), relying on Clapper, the U.S. District Court for the Northern District of Illinois granted Barnes & Noble's motion to dismiss and found that the plaintiffs lacked standing to bring an action against Barnes & Noble. The court held that the plaintiffs failed to allege an injury in fact that was "certainly impending" and that speculation of future harm does not constitute actual injury. The court found that an increased risk of identity theft does not constitute actual harm for purposes of standing. In addition, the court held that the "only cognizable potential injury" alleged by plaintiffs was a fraudulent charge on one of the plaintiff's credit cards. The court stated that, even if the fraudulent charge was due to Barnes & Noble's actions or inactions, the plaintiff alleged only that she was without the use of her credit card for an unspecified period of time until she received her replacement card. The court found this insufficient to establish standing because the plaintiff did not have an unreimbursed charge on her credit card and, thus, failed to allege an actual injury.

Since Clapper, the majority of courts have dismissed data breach claims based upon lack of standing. In fact, there are only a handful of cases that go against the trend. In 2014, the Northern District of California found that plaintiffs' allegations satisfied the standard articulated by the court in Clapper, in In re Adobe Systems Privacy Litigation, Civ. A. No. 13-05226 (N.D. Cal. Sept. 4, 2014). The plaintiffs argued that they had standing because they suffered three types of injuries: (1) increased risk of future harm; (2) costs to mitigate risk of future harm; and (3) loss of the value of their Adobe products. The court found that because certain of the data appeared on the Internet, the potential for misuse of that data was "certainly impending" and that the costs for credit monitoring were an injury in fact that conferred standing.

Initially, the Adobe case signaled that data breach plaintiffs might be gaining ground. Then, less than two weeks after the decision in Adobe, based upon a similar set of facts, the Northern District of Illinois found that data breach plaintiffs lacked Article III standing, in Remijas v. Neiman Marcus, Civ. A. No. 14-1735 (N.D. Ill. Sept. 16, 2014). Despite the fact that more than 9,000 card holders had unauthorized charges on their credit cards, the court held that the plaintiffs failed to allege "concrete" injuries because they did not allege that they would be held financially responsible for those charges. In addition, the court found that plaintiffs failed to allege "precise" costs for mitigating future risk of fraudulent charges and, thus, these costs were not a cognizable injury for purposes of standing. The Neiman Marcus case is pending before the U.S. Court of Appeals for the Seventh Circuit.

Perhaps recognizing the difficulty in overcoming the standing hurdle (and that the Adobe ruling was not as widely accepted as plaintiffs had hoped), data breach plaintiffs have started to assert statutory claims under, among others, the Fair Credit Reporting Act, Stored Communications Act, Telephone Consumer Privacy Act and Video Privacy Protection Act. Under these statutes, a plaintiff may be able to establish standing even without suffering any actual injury.

In Robins v. Spokeo, 742 F.3d 409 (9th Cir. 2014), the Ninth Circuit affirmed the trial court's decision finding that the plaintiff had standing to sue Spokeo under the Fair Credit Reporting Act for allegedly reporting inaccurate information on its website about the plaintiff's income and education. Even though the plaintiff did not suffer any concrete injury, the court held that he had standing based purely upon the fact that Spokeo's acts violated the Fair Credit Reporting Act. Certain appellate courts have agreed with the decision in Spokeo, while others have held that, without some sort of actual injury, a plaintiff cannot establish standing based solely upon a statutory violation. Although it denied certiorari on this same issue a few years ago, early this year, the U.S. Supreme Court granted certiorari review of Spokeo. If the Supreme Court affirms the Ninth Circuit's decision, then, even without showing any actual injuries, plaintiffs will likely be able to rely upon statutory violations to advance their data breach claims.

At the moment, in the absence of any concrete injury, defendants in data breach cases continue to have the upper hand. However, the data breach litigation landscape is constantly changing and, like any other area of litigation, defendants must be prepared to refine their arguments in response to case law and plaintiffs' evolving theories of liability.

Originally published in The Legal Intelligencer

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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