United States: 5 Big Developments In Privacy Class Actions In 2015, And 3 To Look For In 2016

Last Updated: January 6 2016
Article by Paul Karlsgodt

The burgeoning area of privacy class action litigation showed no signs of slowing down in 2015. Here are some of the most significant developments from the past year, as well as some things to watch for in the coming year. For purposes of this article, we include in the definition of "privacy" class action litigation class actions arising out of data security breaches; litigation involving the collection, use, or transfer of consumer information; and litigation involving alleged intrusions upon privacy interests.

Five Significant Developments in 2015

  1. The Seventh Circuit Court of Appeals Chips Away at Article III Standing as a First Line of Defense

Immediately after the Supreme Court issued its decision in Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013), defense lawyers began to cite it in data breach cases for the proposition that the mere risk of future identity theft was never an injury in fact sufficient to give rise to Article III standing. Several early lower court decisions accepted this argument, but more recently, lower courts have begun to find ways to distinguish Clapper, resulting in a trend toward pre-Clapper jurisprudence that, at least in some instances, the risk of future harm is an injury in fact. The most prominent of these decisions was the Seventh Circuit's decision in Remijas v. Neiman Marcus Group, LLC, 794 F. 3d 688 (7th Cir. 2015), where the panel held that the alleged facts supported the conclusion that the risk of harm in the form of identity theft was not just possible but was actually "certainly impending," distinguishing it from the facts at issue in Clapper.

While certainly a victory for data breach plaintiffs, the victory may ultimately turn out to be a hollow one. The Remijas panel refused to consider the related argument of whether the alleged future harm was a cognizable injury sufficient to satisfy the elements of the plaintiffs' claims on the merits, holding that the issue had been waived because the defendant had not cross-appealed. In the primary Seventh Circuit case decided before Clapper involving standing in the data breach context, Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 639-40 (7th Cir. 2007), the court had reached the second issue and had ruled that although the plaintiff had standing, he had not stated a claim for relief on the merits. A similar result had been reached in the Ninth Circuit's primary pre-Clapper standing decision, Krottner v. Starbucks Corp., 628 F.3d 1139 (9th Cir. 2010). In light of these trends, look for the battleground to shift from standing to early attacks on plaintiffs' claims on the merits.

  1. Class Certification Granted in Target Issuing Bank Litigation

In September, U.S. District Judge Paul Magnuson granted class certification in the consolidated MDL proceeding brought on behalf of issuing banks claiming damages resulting from Target's 2013 payment card hacking incident. In re: Target Corporation Customer MDL, No. 14-2522 (D. Minn., Sept. 15, 2015). The decision was significant as one of the first to grant class certification in a class action arising out of a data breach. However, it is important to understand the context of the decision in evaluating its potential future legacy. In particular, in reasoning that variations in injury and causation did not prevent class certification, Judge Magnuson distinguished the issuing bank case from the class actions brought on behalf of individual consumers arising from the same breach, observing that the injuries allegedly suffered by issuing banks were not potential future injuries but rather expenses already incurred for, among other things, reissuing cards compromised in the incident. He went on to reason that the individualized issues regarding causation and injury were not present with regard to the financial institutions' claims, and that any issues regarding variations in the amount of damages did not prevent class certification. This distinction means that the decision will be of limited value to plaintiffs in consumer data breach class actions.

  1. High-Profile Data Breach Settlements Remain (Mostly) Limited to Payment Card Breaches

We will never know whether the distinctions between the issuing banks' claims and consumer claims would have been enough to make a difference in Judge Magnussen's analysis of class certification in the consumer action, because the parties had already reached a settlement of the consumer claims before the case reached the contested class certification phase. The Target settlement calls for Target to pay $10 million into a fund against which class members can make claims for compensation for certain out-of-pocket expenses, but it also requires Target to pay for administration and an attorney's fee award in addition to that amount, so the overall cost of the settlement to Target is closer to $20 million. The Target settlement is the latest in a trend in which defendants in payment card data breach cases have settled at an early stage. The individual benefits available to claimants are similar to other payment card data breach settlements, such as the settlements reached in class actions brought against T.J.Maxx, Heartland, Michaels, and Schnuck Markets. However, the Target settlement differs from those other settlements in that the $10 million amount is not a cap but rather a nonreversionary fund which Target has to pay even if less than $10 million is actually claimed.

Outside the context of payment card breaches, data breach class action settlements have been rare so far. One notable exception in 2015 was Sony's settlement of the lawsuits brought on behalf of employees arising out of the highly publicized hacking incident said by the U.S. government to have been committed by North Korea in retaliation for Sony's production of the film The Interview. It remains to be seen whether the Sony settlement will influence other settlements in cases involving hacking of information other than payment cards, but the unique facts underlying the Sony case make that settlement an unlikely model for other data hacking cases.

Earlier in the year, Adobe reached an individual settlement with the named plaintiffs and their attorneys in a would-be class action lawsuit arising out of a hacking incident in which consumers' payment card numbers and other personal information were allegedly exposed. The plaintiffs agreed to the settlement after discovery apparently revealed no evidence that any data had actually been misused. The Adobe settlement is significant in that it illustrates a way in which a data breach class action can be resolved without the defendant having to provide monetary benefits to every member of a proposed class. Of course, by settling on an individual basis, the defendant does not receive a release of all putative class members' claims. As a result, this settlement structure will not work as a practical matter when the defendant is likely to continue to face suits by other plaintiffs and their attorneys after settling with a given set of plaintiffs and attorneys.

  1. Customer Data Collection Class Actions Continue to Hit Roadblocks, but Plaintiffs Are Persistent

As technological advances make the collection, storage, and analysis of ever-larger amounts of data less and less expensive, we are starting to see an increase in class actions attacking the ways in which companies collect, store, sell, and transfer information about their customers or other consumers. As with data breach cases, however, the challenge that plaintiffs in these cases face is in articulating some cognizable injury resulting from the use or sale of information about them. That inability to establish any injury, among other things, led to the failure of several putative class actions in 2015, most notably in a series of cases alleging that companies allowed personally identifiable information about customer Internet browsing history to be collected and sent to the social media site Facebook. In re: Hulu Privacy Litigation, — F. Supp. 3d —-, No. 3:11-cv-03764 (N.D. Cal. Mar. 31, 2015) (granting summary judgment); Carlsen v. GameStop, Inc., — F. Supp. 3d —-, 2015 WL 3538906, at *6 (D. Minn. June 4, 2015) (granting motion to dismiss); Austin-Spearman v. AARP and AARP Services, Inc., — F. Supp. 3d —-, 2015 WL 4555098 (D.D.C. July 28, 2015) (same).

Notwithstanding these recent setbacks, expect plaintiffs to continue to pursue lawsuits arising out of the collection, use, and transfer of personally identifiable information in the years to come, as technological advances allow companies to become more creative in what they can do to profit from this information.

  1. The TCPA Litigation Explosion Continues, for Now

Class actions arising out of alleged violations of the Telephone Consumer Protection Act continue to be filed in droves. The potential recovery of between $500 and $1,500 in statutory damages per violation, combined with the fact that many cases involve hundreds, thousands, or even millions of calls in connection with a particular telemarketing or debt collection effort, make this statute a gold mine for entrepreneurial plaintiffs' firms, and hundreds of firms have taken advantage of the opportunity. The strategies employed by these firms can vary greatly, with some firms looking for a quick nuisance settlement and others holding out for large class settlements.

Companies continue to lobby Congress and the FCC for changes to what many see as a draconian law that excessively punishes companies for mere technical violations and offers a potential jackpot to plaintiffs and their attorneys. But so far, those efforts have not been successful. As discussed below, however, there is a case pending before the Supreme Court this term that could give defense attorneys a powerful procedural weapon to fight class actions under the TCPA and other federal laws that provide for statutory damages.

Three Things to Watch for in 2016

  1. Will we start to see more settlements in nonpayment card cases?

As noted above, so far, most defendants (and their insurers) have been holding strong in refusing to settle data breach class actions not involving thefts of payment cards. This is due in large part to the fact that defendants have generally been successful in defending these cases at the early stages, either on standing arguments or Rule 12(b)(6) motions. However, given the volume of data breach class actions that continue to be filed, the plaintiffs' bar seems to be banking on the fact that this trend will change, perhaps as more cases survive initial standing challenges.

  1. Will more data breach cases reach the class certification stage?

With more courts finding ways to distinguish Clapper, one common line of defense is weaker than it was a few years ago, so it is natural to presume that more cases in the future will reach the class certification phase. Look for more decisions on class certification in data breach cases over the next couple of years.

  1. How will pending Supreme Court cases impact privacy class action litigation going forward?

There are at least three cases pending this term in the United States Supreme Court that could have an impact on privacy class action litigation going forward.

The first is Spokeo, Inc. v. Robins, No. 13-1339. In its broadest sense, Spokeo presents the issue of whether Congress can enact a statute that confers Article III standing to sue for statutory damages to a person who has not suffered any actual injury. If the Court actually addresses this broad issue in its decision, Spokeo could have a significant impact on privacy litigation, where plaintiffs often raise novel theories of liability based on alleged technical statutory violations as a means to overcome the common problem of not being able to show a present injury. However, the questions posed by the Court during oral argument suggest that the Court's analysis may ultimately be more narrowly tailored to the plain language and congressional intent behind the Fair Credit Reporting Act, the particular federal statute at issue in Spokeo.

A second case, Campbell-Ewald Co. v. Gomez, No. 14-857, presents the question of whether an offer of complete relief to a named plaintiff has the effect of mooting both the individual claims and any proposed class claims brought by the named plaintiff. The circuit courts of appeals were initially split on this question but recently have come into alignment in concluding that an unaccepted offer of settlement does not moot a named plaintiff's claims. The questions posed during oral argument in Campbell-Ewald suggest that the Court is split, with Justice Kennedy appearing to be the likely swing vote. If the Court does ultimately go against the circuit courts and hold that an unaccepted offer moots both individual and class claims, the decision could create a significant tool for defendants in avoiding exposure in a variety of consumer class actions, including privacy class actions.

The final case that has a potential to impact privacy class actions is Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, in which the questions presented include the extent to which individual differences in the harm suffered by class members can be ignored and statistical methods be used instead in deciding whether to certify a case as a class action. However, comments made by several justices during oral argument reflect that this case will likely be resolved on FLSA-specific grounds rather than on any more general examination of the class certification requirements of Rule 23 of the Federal Rules of Civil Procedure. If the decision does involve an examination of the types of statistical evidence that can justify class certification under Rule 23, however, it may be impactful as more privacy cases reach the class certification phase. This is because, just as in wage and hour litigation, statistical methods have been proposed as a way of resolving the problem of variation of injury and causation between class members in data privacy cases, most notably in the Hannaford payment card data breach litigation. See In re: Hannaford Brothers Co. Customer Data Breach Litigation, 293 F.R.D. 21, 30-32 (D. Me. 2013).

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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