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Data Breach Lawsuits – Revisiting the Risks

Posted in Data Breach, Data Breach, Data Privacy, Data Security, Lawsuits

Until recently, individuals whose information was compromised as a result of a company suffering a data breach faced an uphill battle when suing the company in a class action lawsuit.  Far more often than not, Courts dismissed the lawsuits or entered summary judgment in favor of defendants on grounds that the plaintiffs could not establish a cognizable injury, preemption by breach notification statutes, or lack of evidence that the data breach (as opposed to some other act of identity theft) caused the plaintiff’s damages.  I’m still convinced that the pro-defendant environment remains the norm.  Nevertheless, four recent cases are being used to support the argument that the tide may be turning in favor of plaintiffs.

Burrows v. Purchasing Power, 12-cv-22800-UU (S.D. Fla.)

The most recent example is a proposed settlement in a class action lawsuit against Winn-Dixie and one of its service providers arising from a breach of personally identifiable information of Winn-Dixie grocery store employees.  The employees’ personally identifiable information was allegedly compromised when an employee of a company that provided an employee benefit program to Winn-Dixie employees misused his access to the PII and filed fraudulent tax returns with it.

Approximately 43,500 employees filed a class action lawsuit in the Southern District of Florida against Winn-Dixie and its employee benefits service provider.  The lawsuit includes counts of negligence, violation of Florida’s Deceptive and Unfair Trade Practice statute, and invasion of privacy.  Plaintiffs alleged that Defendants failed to adequately protect and secure the plaintiffs’ personally identifiable information, and that the defendants failed to provide the plaintiffs with prompt and sufficient notice of the breach.

The defendants’ attempts to defeat the plaintiffs lawsuit on the pleadings failed.  Winn-Dixie was subsequently voluntarily dismissed from the lawsuit and the case proceeded against the service provider, which ultimately entered into a proposed settlement with the plaintiffs, agreeing to pay approximately $430,000 ($225,000 towards a settlement fund, $200,000 in attorney’s fees and costs, and a $3,500 incentive aware to the named plaintiff).  The settlement states that it was entered into “for the purpose of avoiding the burden, expense, risk, and uncertainty of continuing to litigate the Action, . . . and without any admission of any liability or wrongdoing whatsoever.”

The settlement requires the service provider to maintain rigorous security safeguards to minimize the risk of a similar incident in the future.  The settlement fund will be divided into four groups:  (1) a tax refund fraud fund (class members who show they were victims of tax refund fraud can be compensated for a portion of lost interest); (2) a tax preparer loss fund (class members can be compensated for fees paid to tax preparers for notifying the IRS of a tax fraud claim or assisting in resolving issues arising from the tax refund fraud, not to exceed $100); (3) a credit card fraud fund (class members who show they were victims of identity theft other than tax refund fraud that resulted in fraudulent credit card charges that the credit card company did not waive, up to $500); and, (4) a credit monitoring fraud (class members who receive compensation in any of the previous three groups may receive credit monitoring services for one year).  To “prove” they were victims of fraud, plaintiffs must prepare a statement under penalty of perjury regarding the facts and circumstances of their stolen identity.

The settlement was preliminarily approved by the court on April 12, 2013, and a fairness hearing is scheduled for October 4, 2013.  The amount of money being paid to plaintiffs and their lawyers in this case should give corporate counsel monitoring these lawsuits pause for concern.  The District Court’s order allowing the case to proceed beyond the pleadings phase will likely be used as an instruction manual for plaintiffs in future data breach cases.

Resnick v. AvMed, Inc., 1:10-cv-24513-JLK (S.D. Fla.)

I previously blogged about the Eleventh U.S. Circuit Court of Appeal’s opinion that allowed a data breach class action to proceed where the plaintiffs claimed they were victims of identify theft arising from the theft of a laptop computer containing their personal information.  I encourage corporate counsel to read that post to learn more about the factors the Eleventh Circuit looked to in allowing that case to proceed beyond the pleadings phase. That lawsuit remains pending in the U.S. Southern District of Florida.

Harris v. comScore, Inc., No. 11-C-5807 (N.D. Ill. Apr. 2, 2013)

Another recent legal development considered by many to be favorable to plaintiffs was a decision by the U.S. District Court for the District of Chicago court certifying a class of possibly more than one million people who claim that the online data research company comScore, Inc. collected personal information from the individuals’ computers and sells it to media outlets without consent.  Although the lawsuit did not arise from a data breach, some of the arguments regarding lack of injury and whether class certification is appropriate are the same.  The plaintiffs allege violations of several federal statutes including the Electronic Communications Privacy Act and the Stored Communications Act. The court rejected comScore’s arguments challenging class certification, including its argument that the issue of whether each plaintiff suffered damages from comScore’s actions precludes certification.  The lawsuit remains pending.

Tyler v. Michaels Stores Inc., SJC-11145, 2013 WL 854097 (Mass. Mar. 11, 2013)

The Massachusetts Supreme Judicial Court broadened the definition of the term “personal information” to include ZIP codes.  The court held that because retailers can use ZIP codes to find other personal information, retailers where prohibited by Massachusetts law (the Song-Beverly Credit Card Act) from collecting ZIP codes.  The court also ruled that the plaintiffs did not have to prove identity theft to recover under the statute.  They could instead rely on the fact that they received unwanted marketing materials and that their data was sold to a third party.  The fact that plaintiffs can proceed with their lawsuit without having to show that their information was actually compromised will undoubtedly be used by plaintiffs in data breach litigation to argue that the threshold for injury in such cases is lower that in other cases.

What’s the Takeaway?

What should corporate counsel take from these cases? It is still too early to tell if these cases are outliers or if they mark a new trend in favor of plaintiffs in privacy and data breach cases that will embolden the plaintiffs’ bar.  The most important takeaway for corporate counsel at this stage is that they must, at a minimum, monitor the litigation risks associated with data breaches and other privacy violations so they can advise their companies about these risks, which can in turn consider these risks when building security and privacy into various products and services.

 

DISCLAIMER:  The opinions expressed here represent those of Al Saikali and not those of Shook, Hardy & Bacon, LLP or its clients.  Similarly, the opinions expressed by those providing comments are theirs alone, and do not reflect the opinions of Al Saikali, Shook, Hardy & Bacon, or its clients.  All of the data and information provided on this site is for informational purposes only.  It is not legal advice nor should it be relied on as legal advice.