After the highly publicized cyber-attack on Sony Pictures Entertainment, Inc., which has been attributed to the so-called Guardians of Peace, Michael Corona, and eight other former Sony employees whose personal information was stolen, filed a class action asserting claims for: (1) Negligence; (2) Breach of Implied Contract; (3) Violation of the California Customer Records Act; (4) Violation of the California Confidentiality of Medical Information Act; (5) Violation of the Unfair Competition Law; (6) Declaratory Judgment; (7) Violation of Virginia Code § 18.2-186.6, and (8) Violation of Colorado Revised Statutes § 6-1-716.

Sony filed a motion to dismiss arguing that the Central District of California lacked subject matter jurisdiction over the action. Specifically, Sony argued that the plaintiffs lacked Article III standing, because they failed to allege a current injury or threatened injury that was certainly impending. Sony further argued that, even if plaintiffs had standing, the suit must be dismissed for failure to state a claim.

On June 15, 2015, the court ruled on the motion to dismiss. The court disagreed that plaintiffs’ allegations were insufficient to establish standing. Relying on Krottner v. Starbucks Corp., 628 F.3d 1139 (9th Cir. 2010), Clapper v. Amnesty International USA, Inc., 133 S.Ct. 1138 (2013), and In re Adobe Systems, Inc. Privacy Litigation, 2014 WL 4379916, the court determined that the plaintiffs need only allege a credible threat of real and immediate harm, or certainly impending injury—not a current injury—which they had done by alleging their information was stolen, posted on file-sharing websites for identity thieves to download, and was used to send emails threatening physical harm to employees and their families.

The court’s ruling is consistent with other recent rulings in California, which suggests this is a trend in the prosecution of data breach claims rather than just an outlier. (To read more on this subject, please see our article published in DRI’s For the Defense in February 2015, available here.)

The court then turned to the merits of plaintiffs’ claims. It dismissed four of plaintiffs’ claims and a portion of plaintiffs’ negligence claim. The court dismissed the plaintiff’s negligence claim to the extent it was based on an increased risk of future harm, as there was no cognizable injury. The court also dismissed plaintiffs’ breach of implied contract claim, finding that, while there was an implied employment contract, that there was no indication Sony intended to frustrate the agreement by consciously and deliberately failing to maintain an adequate security system. The court dismissed the California Customer Records Act claim as the plaintiffs were not damaged as Sony customers. Further, the court dismissed plaintiffs’ claims for violation of the Virginia Code and the Colorado Consumer Protection Act, because plaintiffs failed to allege injury resulting from the alleged untimely notification.

Plaintiffs’ negligence claim survived to the extent it was based on actual damages, such as costs associated with credit monitoring, password protection, freezing/unfreezing of credit, obtaining credit reports, and penalties resulting from frozen credit, even though they were prophylactic in nature because they were reasonable and necessary. The court denied the motion to dismiss with respect to plaintiffs’ claim for violation of California Business and Professions Code Section 17200 on the same basis.

Finally, the motion was denied with respect to the California Confidentiality of Medical Information Act claim, because negligent maintenance of records, which allows someone to gain unauthorized access, may constitute a negligent release of medical information within the meaning of the Act. The plaintiffs did not need to allege an affirmative act to maintain this cause of action.