Various media outlets dubbed 2014 “the Year of the Data Breach.” Unfortunately for businesses, breach of their secure systems by hackers may be only the beginning of the bad news – which often culminates in class action lawsuits. Although 2014 started favorably for data breach defendants, with several federal district courts granting motions to dismiss such claims, December ended on a high note for the plaintiff’s bar, with two Minnesota federal district decisions holding that most of the claims asserted by putative classes of consumer and financial institution plaintiffs against Target survived the retailer’s motions to dismiss. In the wake of these decisions, federal district courts in Minnesota – along with federal district courts in California, which have long been a hotspot for class action litigation – may emerge as a venue of choice for high-stakes data breach litigation.
The litigation against Target followed a data breach at the retailer over the 2013 holiday shopping season. At the request of the retailer, the Judicial Panel for Multidistrict Litigation consolidated all pending federal court litigation against it as a result of the data breach in Minnesota federal district court, where plaintiffs filed two consolidated putative class action complaints – one on behalf of consumers and the other on behalf of financial institutions.
In denying Target’s motion to dismiss the consumer class action, the Court rejected the retailer’s argument that the 114 named plaintiffs lacked standing to sue under Article III of the United States Constitution because they failed to allege any concrete, certainly impending injury as a result of the alleged disclosure of their financial information from Target’s payment systems. In so holding, the Court declined to conduct a plaintiff-by-plaintiff assessment of standing, summarily concluding that the standing requirement was met because some plaintiffs alleged injuries that included “unlawful charges, restricted or blocked access to bank accounts, inability to pay other bills, and late payment charges or new card fees.” The Court thus failed to address plaintiffs’ more controversial assertion that even those plaintiffs who alleged only the compromise – as opposed to any actual misuse – of their financial information had standing to sue. In addition, the Court denied Target’s motion to dismiss claims under the laws of Delaware, Maine, Rhode Island, Wyoming, and the District of Columbia, despite the undisputed fact that none of the 114 named plaintiffs hailed from those jurisdictions; instead, the Court indicated that Target could re-assert this argument at the class certification stage.
In addressing the consumer plaintiffs’ substantive claims, the Court allowed plaintiffs to proceed with their consumer protection claims under the laws of all states except Alabama, Georgia, Kentucky, Louisiana, Mississippi, Montana, South Carolina, Tennessee, and Utah – where the applicable consumer protection statutes expressly prohibited class actions. The Court also declined to dismiss plaintiffs’ allegations under most state data-breach notice statutes; however, the Court dismissed claims under the notification statutes of Florida, Oklahoma, Utah, Arkansas, Connecticut, Idaho, Massachusetts, Minnesota, Nebraska, Nevada, Texas, and Rhode Island because those statutes do not provide a private right of action. The Court found that plaintiffs’ negligence claims under the laws of Alaska, California, Illinois, Iowa, and Massachusetts were barred by the economic loss rule, but allowed the remainder of the negligence claims to proceed. The Court dismissed plaintiffs’ bailment claims because plaintiffs failed to allege that Target had agreed to return any personal financial information to plaintiffs. Plaintiffs had two theories to support their unjust enrichment claim: (1) an “overcharge” theory that prices at Target included a “premium” for adequate data security, and (2) a “would not have shopped” theory that plaintiffs would not have shopped at the retailer if it had timely disclosed the breach. Although the Court found that the overcharge theory had no merit, it allowed plaintiffs to proceed with the unjust enrichment count on the “would not have shopped” theory. The Court also allowed plaintiffs to proceed with their claim for breach of implied contract, but dismissed the claim for breach of express contract without prejudice and with leave to file an amended complaint alleging the required elements of the claim within 30 days.
With regard to the claims of the putative financial services institutions class, the Court held that plaintiffs could proceed with their claims for negligence, negligence per se, and violation of Minnesota’s Plastic Card Security Act – which Act the Court held was applicable to the retailer’s transactions outside the state of Minnesota. However, the Court granted the motion to dismiss the claim for negligent misrepresentation by omission because plaintiffs failed to plead reliance; the Court stated that the dismissal was without prejudice and with leave for plaintiffs to file within 30 days an amended complaint that sufficiently alleged the reliance element.
Given the receptiveness of California and Minnesota federal district courts to putative data breach class action claims, one may wonder: “Will 2015 be the year of the data breach class action?” Stay tuned to the Classified blog for more updates.