United States: The Future Of Standing In Data Breach Class Actions

Last Updated: December 22 2016
Article by Christine A. Stoddard and Kristin A. Shepard

In today's world, as technology costs decrease and personal information becomes more valuable on the black market, data breaches have seemingly joined the ranks of death and taxes as certainties. Add to that litigation: companies suffering data breaches face exposure to lawsuits by consumers, employees, and even financial institutions. One particular concern for companies is the possibility of costly consumer class actions. Though such lawsuits still account for fewer than 5 percent of all class actions faced by large companies, nearly a quarter of corporate counsel expect data breach class actions to become the next big trend in litigation.

To date, data breach consumer class actions have met with mixed results in court. Standing is a common hurdle; under Article III, plaintiffs must show they have suffered concrete, particularized, and imminent harm, along with a causal relationship between the injury and the challenged action and that the injury can be redressed by a favorable decision. This can be difficult in the context of a data breach where information has been stolen but not used, leaving courts to debate whether the risk of future identity theft is sufficient to show the injury-in-fact necessary to establish standing. Many courts have found it is not, following the Supreme Court's opinion in Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013), a case dealing with the FISA Amendments Act of 2008 in which the Court found allegations of potential future injury insufficient to demonstrate standing. Recently, though, some plaintiffs have begun surviving these threshold challenges, and, by the end of last year, questions regarding standing in data breach class actions remained open. As 2016 comes to a close, it seems much is still unknown; although more appellate courts have begun weighing in on the issue, the future of the Supreme Court and eventual replacement of Justice Scalia may alter the provisional landscape.

Thus far, the Sixth and Seventh Circuits have held that consumer data breach class actions satisfied Article III's standing requirement. For example, in Remijas v. Neiman Marcus Group, LLC, No. 14-3122, and Lewert v. P.F. Chang's, No. 14–3700, the Seventh Circuit determined that customers whose credit card information was compromised established standing because they faced an imminent risk of identity theft and fraudulent charges, which are the primary reasons hackers steal data. The court also noted that the time and money spent resolving issues that had already arisen were cognizable injuries for Article III purposes. Likewise, in Galaria v. Nationwide, Nos. 15-3386/3387, the Sixth Circuit found that the substantial risk of harm of identity theft and fraud, along with mitigation costs that had already been incurred, sufficed to establish standing in a consumer class action stemming from a November 2012 hacking incident in which the social security and drivers' license numbers of approximately 1 million customers were allegedly stolen from defendant's network. The Sixth Circuit Galaria panel split 2:1, with Circuit Judge White writing for the majority and joined by District Court Judge Lipman sitting by designation; Circuit Judge Batchelder dissented. The Sixth Circuit denied defendant's petition for rehearing en banc.

Meanwhile, plaintiffs have appealed lower courts' dismissals of putative data breach class actions for lack of standing to the Fourth, Eighth, and District of Columbia Circuits – arguing that these circuits should follow the Sixth and Seventh Circuit's approach. In September 2016, the Fourth Circuit heard oral argument in Beck v. McDonald, No. 15-1395/15-1715, which arose from the theft of a VA Hospital laptop that contained plaintiffs' medical information. Alleruzzo v. Supervalu, No. 16-2378/16-2528, which arose from a hack that allegedly compromised payment card information for customers at more than 1,000 grocery stores, has been fully briefed in the Eighth Circuit and will be argued in 2017. Attias v. CareFirst, No. 16-7108, a putative class action following a data breach of the defendant health care insurer, is pending in the District of Columbia Circuit and will be briefed in early 2017.

With President-elect Donald Trump set to take office next month and a Supreme Court nomination looming, the Sixth and Seventh Circuit decisions finding plaintiffs demonstrated standing may be short-lived. Trump's widely-publicized list of potential nominees contains 21 conservative justices that Republicans hope will follow in the footsteps of their predecessor. Justice Scalia famously sought to curtail class actions, authoring decisions such as Wal-Mart Stores, Inc. v. Dukes, Comcast v. Behrend, and AT&T Mobility LLC v. Concepcion, all of which took aim at limiting plaintiffs' ability to bring such lawsuits. Even more notable is the fact that all three rulings were decided by a 5-4 vote, leaving Justice Scalia's replacement with a significant opportunity to influence the Court's future class action jurisprudence.Will a conservative new Supreme Court Justice derail the data breach class action freight train? Stay tuned in 2017!

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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