Authors: Erica Gann Kitaev and Paul Karlsgodt

For a number of years, the key issue in data privacy class actions has been whether plaintiffs could allege damages sufficient for standing purposes or to state a claim for relief.  Several key decisions addressed the issue in 2013.  In addition, in 2013, theories of injury and damages revealed themselves to be deciding factors at the class certification stage of litigation.  Finally courts, continued to address new and creative theories of liability arising out of data breaches and claims of invasion of privacy.

Article III Standing

Several key decisions this year highlighted the ongoing challenges privacy class action plaintiffs face in alleging adequate injury for the purposes of both Article III standing and to state a claim for relief.  Because many privacy class action plaintiffs are able only to allege increased risk of future identity theft or another hypothetical harm, as opposed to actual identity theft or a related harm from a breach,  privacy class action suits often are dismissed for lack of Article III standing. Two key decisions in 2013 strengthened the prevailing view by courts that in the absence of actual injury, plaintiffs cannot establish the “concrete” and “particularized” injury necessary to confer standing.

In February, the Supreme Court held in Clapper v. Amnesty International[1] that class action plaintiffs lacked standing to challenge government monitoring of communications under section 702 of the Foreign Intelligence Surveillance Act because they could not prove that interception of their communications under section 702 was “certainly impending.”  The Clapper plaintiffs were attorneys and organizations whose work required them to engage in sensitive and privileged communications with individuals whom they believed were likely targets of surveillance.  The Clapper plaintiffs asserted that their work would be compromised by the chilling effect of the law but also that, in response to and to protect their communications from the law’s application, they had undertaken “costly and burdensome measures” to protect the confidentiality of their sensitive communications.  The court held that standing requires an injury that is “certainly impending” and that “[a] speculative chain of possibilities” regarding future injury and standing theories that “rest on speculation about the decisions of independent actors” will not suffice.  Plaintiffs, therefore, could not satisfy the “injury-in-fact” prong of the Supreme Court’s test for Article III standing

Though Clapper was not itself a data privacy class action, the decision suggests that privacy class action plaintiffs cannot manufacture standing either by claiming that a breach put them at increased risk of identity theft or, relatedly, by incurring costs to mitigate a future unknown risk of identity theft, such as by obtaining credit reports or purchasing credit monitoring services.  And, in fact, later in the year, two federal courts independently dismissed class action complaints for failing to adequately allege cognizable damages relying on the Supreme Court’s decision in Clapper.

In September, the Northern District of Illinois issued its opinion in In re Barnes & Noble Pin Pad Litigation. [2]  The Barnes & Noble litigation stemmed from the October 2012 discovery that hackers were stealing credit and debit card information from Barnes & Nobles’ PIN pad devices at 63 stores across the country.  In their suits, the plaintiffs pled multiple state law claims alleging various injuries, including but not limited to, inadequate notification of the incident, expenses incurred in efforts to mitigate the increased risk of identity theft or fraud, and an increased risk of identity theft.  The court held that that a mere increased risk of identity theft or fraud fails to establish standing under Clapper because speculation of future harm does not constitute actual injury.  Moreover, the court held that alleged expenses incurred by plaintiffs to combat future identity theft were not sufficient to create injury because plaintiffs could not “manufacture standing by incurring costs in anticipation of non-imminent harm.”

To close out the year, on December 26th, the U.S. District Court for New Jersey made a similar finding in Polanco v. Omnicell, Inc.  Polanco arose from the November 2012 theft of a laptop computer from the vehicle of an employee of Omnicell, a business associate of numerous hospitals.  According to the class action complaint,  the  “stolen laptop computer contained the unencrypted Personal Confidential Information (“PCI”) of Plaintiff, and thousands of other individuals, all of whom provided their information to Defendants Sentara, Inspira, and the University of Michigan during the course of seeking healthcare treatment . . .”[3]  Based on these allegations, plaintiff brought claims for breaches of various state security notification laws, violations of various states’ consumer fraud laws,  fraud, negligence, and conspiracy.  Attempting to put a new spin on damages, the plaintiff claimed she suffered  damages in the form of unspecified out of pocket expenses in seeking medical treatment for her daughter at medical facilities other than defendants’ where plaintiff allegedly felt personal health information would be protected.  The court rejected the plaintiffs’ damages claims.   In dismissing all claims, and relying on Clapper, the court held, inter alia, that plaintiff had “prophylactically spent money to ease [her] fears of [a] future” loss, but had failed to demonstrate a “‘concrete and particularized’ or ‘actual or imminent’ injury.”  Furthermore, the Polanco court addressed the plaintiff’s failure to adequately allege the causation element of standing against defendant Sentara, given that she had no relationship with Sentara, thereby reaffirming that a putative named plaintiff in a class action must be able to adequately allege standing against each defendant.

Barnes & Noble and Polanco highlight the uphill battle plaintiffs will continue to face in bringing privacy class actions that can successfully survive the initial dispositive pleadings stage.  Still, given class action plaintiffs’ lawyers historic creativity in alleging injury, companies should expect allegations in future lawsuits to adapt to the changing privacy class action landscape.

[1] Clapper v. Amnesty International, 133 S. Ct. 1138 (2013)

[2] In re Barnes & Noble Pin Pad Litig., 12-CV-8617, 2013 WL 4759588 (N.D. Ill. Sept. 3, 2013)

[3] Polanco v. Omnicell, Inc, No. 13-1417 (D. N.J. December 26, 2013).