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The Sixth Circuit's split decision last month finding
Article 3 standing in a data breach case is the first of its kind
post-Spokeo. See Galaria v. Nationwide Nos.
15-3386/3387 (6th Cir. Sept. 12, 2016) (unpublished). It is
significant in many ways related to its substance, and for good
reason. By its decision, the Sixth Circuit seems to have
created an even deeper divide between the circuits on the issue of
consumer standing to pursue data breach claims in federal
court.
Although not as cutting-edge of an issue, the case is also
notable for the preservation-related pleading lessons that can be
learned from the majority and dissenting opinions.
Galaria arose out of a data breach of Nationwide's
computer network in 2012, in which hackers stole the personal
information of 1.1 million consumers. In two separate cases
that ultimately were combined, the putative class action plaintiffs
filed a five-count complaint asserting violations of the Fair
Credit Reporting Act, negligence, invasion of privacy by public
disclosure of private facts, and bailment.
The district court dismissed the complaints for lack of Article
3 and statutory standing. Significantly, the plaintiffs moved
for reconsideration and leave to amend the complaint as to the
statutory claim, but decided not to move for reconsideration on the
other claims that were dismissed – including the negligence
claim – and, instead, maintained their right to appeal the
dismissal. As the Sixth Circuit explained in footnote 1 of
its opinion, however, plaintiffs thus missed an opportunity to
bolster their allegations in support of Article 3
standing.
Although the majority ultimately decided the plaintiffs had
originally alleged enough to show standing, they made a risky
tactical pleading decision, given the fact that the standing issue
was one of first impression in this circuit and the appellate court
was split in its decision. The dissent found that the
complaints failed to allege sufficient facts to support a finding
that the alleged harm was fairly traceable to the defendant, and
would have affirmed the dismissal. Just one vote would have
changed the result, based on the pleading posture.
Preservation Issue:
Moving for reconsideration and/or amendment after the dismissal
of pleadings on some claims may result in waiver of the opportunity
to bolster your allegations or affirmative defenses as to other
claims.
Tips:
Regardless of where the court fell on the overarching standing
issue, the dissent's ultimate conclusion shows the dangers in
proceeding without moving for reconsideration and/or to
amend. When faced with an adverse ruling on the pleadings,
whether you are the plaintiff or defendant, it is important to
consider whether it is necessary to bolster and support your
position by seeking reconsideration and/or amending the pleading to
include additional factual allegations.
If the Sixth Circuit would have affirmed based on the pleading
upon which the plaintiffs elected to stand, the plaintiffs would
have effectively waived the right to amend prior to the appeal
during the pleading stage. Such a course of conduct is risky,
particularly in important cases where the law is not
well-settled.
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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