United States: Dual Decisions Provide Narrow Path For Plaintiffs To Establish Standing In Data Breach And Cybersecurity Suits

Last Updated: May 24 2016
Article by Keith M. Gerver and Joseph V. Moreno

Most Read Contributor in United States, August 2018

Last week, decisions by the United States Supreme Court and the Northern District of Georgia provided further guidance regarding the narrow path required for a class action plaintiff to successfully establish Article III standing in a data breach claim brought in federal court. In Spokeo, Inc. v. Robins, the Supreme Court found that an online search engine's failure to accurately collect and report an individual's personal information was insufficient to establish standing, holding that a mere technical violation of a consumer protection statute without any further alleged harm to the plaintiff failed to constitute an injury that was both "concrete and particularized" and "actual or imminent."1 Going forward, savvy defendants no doubt will argue that this standard applies to data breach and cybersecurity actions where only speculative—but not actual—economic or other harm is shown by plaintiffs. However, the Northern District of Georgia in In re Home Depot found that remediation costs incurred by financial institution plaintiffs as the result of a retailer's failure to secure customer information were sufficient to establish standing, even though the plaintiffs were not the ultimate victims of the breach.2

Together, the two decisions provide a path for certain plaintiffs to establish standing in data breach and cybersecurity lawsuits, while possibly leaving others on the courthouse steps.

I. Lack of Actual Harm May Fail the "Concreteness" Test

In Spokeo, the defendant, Spokeo, Inc., is an online "people search engine" that aggregates information from numerous databases and generates a profile about the subject of a search to potential employers or other third parties. In the case of the plaintiff, the profile generated by the defendant was that he was married, in his fifties, has children, holds a well-paying job, and possesses a graduate degree—all of which the plaintiff argued were incorrect and potentially could damage his future job prospects. The plaintiff initiated a class action lawsuit alleging that the defendant willfully violated the Fair Credit Reporting Act ("FCRA"), which requires consumer reporting agencies to "follow reasonable procedures to assure maximum possible accuracy of" consumer reports.3

The District Court dismissed the complaint on standing grounds, holding that the plaintiff had not sufficiently pled an injury-in-fact as required by Article III of the United States Constitution.4 The Court of Appeals for the Ninth Circuit reversed, finding that the plaintiff had alleged a violation of a statutory right that was protected by the FCRA, and that he had a sufficiently individualized (rather than just a collective) interest in how the defendant handled his personal information.

The Supreme Court vacated and remanded the Ninth Circuit's decision, finding that its injury-in-fact analysis failed to consider whether the plaintiff's allegations contained a sufficiently "concrete" harm. In reaching its decision, the Supreme Court noted that a concrete harm need not be tangible—an alleged intangible harm can satisfy this requirement if it has "a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts." Further, the Supreme Court acknowledged—consistent with its previous holding in Clapper v. Amnesty International USA—that the risk of impending future harm also can satisfy the concreteness requirement under certain circumstances, including when costs are reasonably incurred to mitigate or avoid that harm.5 However, the Supreme Court made clear that the mere allegation of a procedural statutory violation and the risk of potential future injury—without more—would be insufficient because not all such violations "entail a degree of risk sufficient to meet the concreteness requirement."6

II. Remediation Costs May Be Sufficient to Establish Standing

Unlike the Supreme Court in Spokeo, the Northern District of Georgia rejected a motion to dismiss on standing grounds in In re Home Depot, finding that remediation costs incurred by banks following a data breach were sufficient to provide standing.

Between April and September 2014, The Home Depot, Inc. ("Home Depot") suffered a retail data breach that allowed hackers to gain access to its computer systems using the credentials of a third party vendor. Through the use of malware that was installed and went undetected for months, the hackers were able to steal the personal and financial information of approximately 56 million Home Depot customers. The stolen information then was sold on the Internet and used to make fraudulent purchases on customers' credit and debit cards.

The plaintiffs, which included a putative class of financial institutions that issued and owned payment cards compromised by the data breach, brought suit against Home Depot for negligence and negligence per se, as well as for violations of eight state-specific consumer protection statutes. They argued that Home Depot failed to encrypt customer data at the point-of-sale, ignored warnings from experts and its own Information Technology Department about security flaws in its system, and was deficient in properly implementing and updating antivirus software. The plaintiffs also alleged that Home Depot made it known it would not spend the money to make necessary improvements to its cybersecurity infrastructure, and even fired an employee who raised concerns about these deficiencies to management. The financial institution plaintiffs claimed they were damaged by having to reissue payment cards, investigate and refund customers for fraudulent charges, and provide customer fraud monitoring services, as well as because of interest and transaction fees lost because customers reduced their card usage. Home Depot responded by arguing that the financial institution plaintiffs lacked standing because, among other reasons, any mitigation costs they incurred, including card reissuance and fraud monitoring, were voluntary expenses that protected against hypothetical future harm, not injuries "fairly traceable" to Home Depot's alleged negligence.

The District Court found that the costs incurred by the financial institution plaintiffs neither were speculative nor were made to protect against threatened future injuries, but rather were actual and current monetary damages. In addition, the court found that any costs undertaken by the plaintiffs to avoid future harm from the data breach also qualified under Clapper as reasonable mitigation costs due to a substantial risk of harm. As a result, the court held that these costs were sufficiently "concrete, particularized, and actual or imminent"—and were fairly traceable to Home Depot's alleged failure to implement adequate data security measures—to establish standing for the financial institution plaintiffs to sue.

III. Conclusion

The result of the Spokeo decision likely will be that plaintiffs in data privacy or cybersecurity suits will lack standing unless they can show a sufficiently concrete economic harm in addition to negligence or a statutory violation. Although the Supreme Court suggested some intangible harms also may be sufficiently concrete to establish standing, it failed to provide any potential examples of what may qualify in the context of a data breach. And while the Spokeo Court also left open the possibility of establishing standing based on the risk of future harm, the only known costs that so far appear to qualify as sufficiently concrete are those incurred to mitigate that harm. Several lower courts post-Clapper, however, have found that the threatened harm simply is too speculative and have denied standing even where plaintiffs have expended resources to mitigate the future harm. As a result, plaintiffs who incur monetary costs in response to data breaches of consumer information—such as the financial institutions in In re Home Depot—may be the last ones standing.

Footnotes

1 Spokeo, Inc. v. Robins, No.13-1339, slip op. (May18, 2016), available at http://www.supremecourt.gov/opinions/15pdf/13-1339_f2q3.pdf.

2 In re Home Depot, No.1-14-md-2583, 2016 U.S. Dist. LEXIS 65111 at *26-*27 (N.D. Ga. May17, 2016).

3 15 U.S.C. §§1681e(b), 1681n(a). A "consumer reporting agency" is one that engages in the practice of assembling or evaluating consumer credit information for the purpose of furnishing consumer reports to third parties. 15 U.S.C. §1681a(f).

4 To establish standing under Article III, a plaintiff (1) must have suffered an injury-in-fact, (2)that is fairly traceable to the challenged conduct of the defendant, and (3)that is likely to be redressed by a favorable judicial decision. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). To establish an injury-in-fact, a plaintiff must show that he or she suffered "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent, not conjectural or hypothetical." Id. at 560.

5 133 S. Ct. 1138, 1150 n.5 (2013) (holding that standing can be "based on a 'substantial risk' that [ ] harm will occur, which may prompt plaintiffs to reasonably incur costs to mitigate or avoid that harm").

6 In her dissenting opinion in Spokeo, Justice Ginsburg argued that the concreteness requirement should be satisfied merely by establishing that a dispute between parties is "definite . . . not hypothetical or abstract," and that the plaintiff's concerns about the potential impact of Spokeo's incorrect information on his employment prospects met this requirement.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Troutman Sanders LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Troutman Sanders LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions