United States: Even After Remijas V. Neiman Marcus, Courts Continue To Dismiss Data Privacy Class Actions For Lack Of Standing

Torres v. The Wendy's Company

In Torres v. The Wendy's Company, No. 6:16-cv-210-Orl-40DAB (M.D. Fl. July 15, 2016), the plaintiff in a putative class action alleged that his debit card information was stolen when hackers used malicious malware to breach Wendy's computer system.  Plaintiff's Class Action Complaint alleged causes of action for breach of implied contract, negligence and violation of Florida's Deceptive and Unfair Trade Practices Act for Wendy's failure to adequately secure his information, and alleged that the theft of his information caused: (1) future injury in the form of an increased risk of identity theft, and costs associated with that risk including monitoring his accounts and credit reports for fraudulent transactions and (2) present injury in the form of two fraudulent charges on his debit card. 

Wendy's filed a motion to dismiss for lack of standing under Article III of the United States Constitution, arguing that Plaintiff's Complaint did not sufficiently allege that he had suffered, or will imminently suffer, an injury-in-fact.  Wendy's argued that Plaintiff's claimed future injury of increased risk of identity theft cannot confer standing because such risk is a speculative future harm; that even though Plaintiff alleges he is at risk of future identity theft and fraud, the risk is too remote to establish standing under Clapper v. Amnesty Int'l USA, where the United States Supreme Court held that though risk of future injury can constitute an injury-in-fact, such injury must be "certainly impending" and "allegations of possible future injury are not sufficient." Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138, 1155 (2012).  Plaintiff countered that his allegation that his information was stolen was sufficient to create the inference that he is at an imminent risk of identity theft under Remijas v. Neiman Marcus Group, LLC, 794 F.3d 688 (7th Cir. 2015), where the court held that allegations that a plaintiff's information was stolen were sufficient under Article III because it establishes a "substantial risk" of future harm. 

With regard to Plaintiff's claimed present injury of incurring fraudulent charges on his debit card, Wendy's argued that Plaintiff did not allege an actual injury-in-fact because he did not allege that any of the charges were unreimbursed by his bank.  Plaintiff contended that the fraudulent charges constituted identity theft, allegations of which are sufficient to confer standing.

The court dismissed the Complaint for lack of standing, holding that neither alleged harm was a cognizable injury-in-fact under Article III. Relying on Clapper and a host of data breach cases decided in its wake, the court held that the Complaint's allegations of an increased risk of identity theft could not confer standing because they constituted allegations of possible future injury insufficient to meet Clapper's mandate that for the threat of future injury to constitute an injury-in-fact sufficient to confer Article III standing, the threat must be "certainly impending."  The court noted that for courts considering the issue, one influential factor is the number of plaintiffs in the class action who experienced fraudulent charges. The court stated that the Complaint did not sufficiently allege certainly impending injury because it did not allege that any data other than the plaintiff's was affected, thereby distinguishing the case from Remijas v. Neiman Macus, where the plaintiffs alleged that 350,000 credit cards had been exposed to the hacker's malware and over 9,200 of those cards had been used fraudulently. The court also held that Plaintiff's allegations that he incurred costs associated with the increased risk of identity theft such as monitoring his finances and credit report could not confer standing because, under Clapper and consistent with the majority of the courts considering the issue, a plaintiff cannot "manufacture" standing by inflicting harm on himself based on fear of future harm that is not certainly impending.

The court held that the plaintiff's allegations of fraudulent charges were insufficient to confer standing because, though actual identity theft would confer standing, courts considering the issue found that mere fraudulent charges do not, in and of themselves, constitute allegations of identity theft.  Rather, the plaintiff must be allege actual monetary loss from the fraudulent charges, and as the Complaint did not contain allegations that the fraudulent charges were unreimbursed or indicate that Plaintiff suffered any other monetary loss from the charges, the Complaint did not allege actual injury-in-fact.

Despite the insistence of data breach plaintiffs that the reasoning of Remijas v. Neiman Marcus compels courts to apply a more relaxed version of Clapper's "certainly impending" standard, this case illustrates that courts in data breach cases have continued to adhere to a robust application of  Clapper's standard when analyzing whether plaintiff has sufficiently alleged an injury-in-fact. 

Manning  v. Pioneer Savings Bank

The Supreme Court of the State of New York, County of Rensselaer recently dismissed a proposed class action arising from the theft of a Pioneer Savings Bank owned laptop from an employee's car. Manning v. Pioneer Savings Bank, No. 251307/2015 (N.Y. Sup. Ct. Rensselaer County, July 17, 2016) (Elliott, J.). Plaintiffs purported to represent a class comprised of all New York State citizens who were Pioneer Savings Bank customers on the date thieves stole Pioneer's laptop, which contained certain customers' personally identifiable information [PII]. Pioneer argued that Plaintiffs' Complaint warranted dismissal, because Plaintiffs did not allege any injury-in-fact that resulted from the theft of the laptop sufficient to establish standing to pursue their claims.  Indeed, Pioneer noted that Plaintiffs' Complaint was devoid of any allegation of actual or attempted identity theft arising from the data incident.  Plaintiffs countered that the theft of their data contained on the laptop, the time and expense necessary to monitor their credit and the heightened risk of future harm conferred standing under New York's common law standard, which Plaintiffs claimed was less-stringent that Article III standing under the U.S. Constitution.  

Justice Elliott's Decision and Order dismissing the Complaint without prejudice agreed with Pioneer that Plaintiffs lacked individual standing to pursue their claims, because Plaintiffs failed to allege the existence of an injury in fact. The court reasoned that Plaintiffs did not establish any actual injury as a result of the data incident, as neither named Plaintiff identified any actual or attempted identity theft or any fraudulent charges. The court deemed Plaintiffs' allegations of speculative future injuries and the hypothetical issues "too remote and not sufficient enough to confer standing on Plaintiffs as they do not constitute an injury in fact." Accordingly, the court dismissed the class action without prejudice because Plaintiffs failed to demonstrate any actual injury that they sustained, and thus, could not seek relief on behalf of any other putative class members. [Editor's Note: Kudos to Lewis Brisbois attorneys Claudia McCarron and David Sherman who successfully defended Pioneer Bank in this action.]

Khan v. Children's National Health System

In Khan v. Children's Nat'l Health Sys., the United States District Court for the District of Maryland addressed whether a plaintiff had standing to pursue a claim where an unauthorized individual gained access to the email accounts of certain hospital employees when those employees responded to "phishing" emails. Civ. No. TDC-15-2125, 2016 U.S. Dist. LEXIS 66404, *2 (D. Md. May 19, 2016). The email accounts contained patient names, addresses, dates of birth, Social Security numbers, telephone numbers and private health care information. Id. The court characterized as plaintiff's strongest argument for Article III standing that she faced an increased risk of identity theft. Id. at 7. In analyzing whether an increased risk of identity theft confers standing, the court addressed numerous data breach decisions throughout the country, including the Seventh Circuit's decisions in Remijas v. Neiman Marcus Group, LLC, 794 F.3d 688 (7th Cir. 2015) and Lewert v. P.F. Chang's China Bistro, Inc., 819 F.3d 963 (7th Cir. 2016) and the Third Circuit's decision in Reilly v. Ceridian, 664 F.3d 38 (3d Cir. 2011). Id. at 8-15. The court recognized that the Third and Seventh Circuits had reached conflicting results, but reconciled the differences as not arising not from the application of a different legal standard, but from distinctions in the underlying facts. Id. at 11. The court concluded that in the data breach context, a plaintiff has properly alleged an injury in fact arising from increased risk of identity theft if they put forth facts that provide either: "(1) actual examples of the use of the fruits of the data breach for identity theft, even if involving other victims; or (2) a clear indication that the data breach was for the purpose of using the plaintiffs' personal data to engage in identity fraud." Id. at 15.

Applying this standard, the court held that the plaintiff alleged no facts that the hackers attempted to engage in any misuse of the patients' data since the breach was discovered. Id. at 16.  Further, the court held that the circumstances did not indicate that the breach was for the purpose of using the plaintiff's data to engage in identity theft. Id. The court reasoned that the hacker did not try to access the hospital's record system and that there was no indication that the patients' data was actually viewed, accessed, or copied, or was even the target of the phishing scheme. Id. Finally, the court dismissed the plaintiff's allegation that data breach victims are 9.5 times more likely to suffer identity theft as unpersuasive and insufficient to establish "certainly impending" harm. Id. at 17-18.  As a result, the court held that the plaintiff failed to allege a "certainly impending" injury or "substantial risk" of imminent injury sufficient to establish Article III standing. Id. at 18.

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