Private civil actions against companies that have suffered data security breaches raise a panoply of issues, but none more prevalent or decisive than those relating to injury and damages. This is because most plaintiffs in data security actions have not experienced any actual loss resulting from the breach, but instead premise their claims on alternative theories of injury, such as the risk of harm. Judicial decisions addressing data security claims have placed clear limitations on the types of injuries the law will remedy. One of those limits derives from the principle of standing, which asks whether plaintiff is the proper litigant to raise the breached company’s alleged legal violations with the court. To have standing, a plaintiff must face an actual or sufficiently imminent future injury from the breach.
One way to challenge a plaintiff’s standing is through a so-called “facial” challenge—that is, to argue the complaint fails to plausibly plead an actual or sufficiently imminent future injury from the breach. These facial challenges are frequently successful, but there have been exceptions. Accordingly, defendants should not overlook an additional, potentially powerful tool for attacking standing: a so-called “factual” challenge, which is based on evidence. Ropes & Gray recently highlighted a successful factual challenge to standing in a federal data breach case. A new decision from the Superior Court of Massachusetts, Walker v. Boston Medical Center Corp. (BMC), SUCV201501733BLS1, 2017 WL 3612366 (Mass. Super. Ct. June 8, 2017), further underscores the viability of this approach.
Standing in Data Breach Litigation
Any private plaintiff in federal court bears the burden of demonstrating the “irreducible constitutional minimum of standing” under Article III of the U.S. Constitution—(1) an injury in fact; (2) caused by the defendant’s conduct; (3) that is redressable by a favorable court decision.1 The injury must be “actual or imminent, not conjectural or hypothetical.”2 Likewise, state courts frequently require that plaintiffs establish a sufficient injury in order to have standing to sue.3
The elements of standing “must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.”4 Accordingly, “[a]t the pleading stage, general factual allegations of injury resulting from the defendant’s conduct may suffice,” but “[i]n response to a summary judgment motion . . . the plaintiff . . . must set forth by affidavit or other evidence specific facts,” and, ultimately, controverted facts “must be supported adequately by the evidence adduced at trial.”5
“Facial” challenges to consumers’ standing in data breach cases—challenges that argue the complaint fails to plausibly plead an actual or imminent injury—have frequently been successful.6 But there have been exceptions.7 “Factual” challenges to standing—ones based on evidence—have also been successful at the motion-to-dismiss stage.8 And, because standing in federal court is an issue of subject-matter jurisdiction, the parties in federal litigation may raise the issue throughout litigation (including for the first time on appeal),9 and a court may consider the issue sua sponte.10 If a challenge to standing fails early on, defendants should consider raising it again at later stages of litigation, when the plaintiff’s burden only increases.11
How to Challenge Standing After the Motion-to-Dismiss Stage
To mount a factual challenge to standing after the motion-to-dismiss stage, a defendant can seek a preliminary pre-trial hearing on the question or raise the issue at trial.12 Alternatively, the defendant can file a summary judgment motion.13 In both federal and state court, defendants have successfully secured standing-based dismissals on summary judgment. Walker, a putative consumer class action alleging that defendants did not keep plaintiffs’ medical information confidential, is a recent example. Defendant BMC used defendant MDF Transcriptions, LLC (MDF) to transcribe physicians’ patient notes, which were available via MDF’s online portal. Another customer of MDF inadvertently accessed a BMC transcription record. BMC subsequently notified all its patients whose records had been transcribed by MDF that there might have been unauthorized access to their medical information. Two of these patients then filed a putative class action against BMC and others.
BMC moved to dismiss for, inter alia, lack of standing. The court, stating that the Massachusetts standard for standing is more relaxed than the federal one, “conclude[d] that the standing question should await a more full record and be decided upon a motion for summary judgment.”14
On summary judgment, the court held that plaintiffs lacked standing to bring several state-law claims. Fatal to plaintiffs’ claims was the failure to submit any evidence that an unauthorized person accessed plaintiffs’ medical records—let alone that their records were misused—or that the public or even other MDF customers accessed BMC patient records. The mere possibility of unauthorized access was insufficient to confer standing.
The court rejected plaintiffs’ argument that BMC’s alleged failure to conduct a thorough investigation prevented plaintiffs from obtaining evidence of unauthorized access. The court emphasized that it was plaintiffs’ “burden to present some evidence in the summary judgment record establishing harm or immediate risk of harm,” “not BMC's responsibility to prove that the BMC records . . . were never accessed or misused by others,”15 and noted that there was no evidence plaintiffs even tried to determine whether other MDF customers had similar improper access to patient records.
One named plaintiff argued that fraudulent tax returns were filed in her name, but the court held that, because a tax return requires a Social Security number, which was not contained in the plaintiff’s transcriptions, the plaintiff failed to provide any evidence linking the fraudulent filings to her records at MDF.
Similarly, in Hammond v. Bank of New York Mellon Corp., No. 08 Civ. 6060, 2010 WL 2643307 (S.D.N.Y. June 25, 2010), consumers brought a putative class action against a bank, alleging that the bank had stored their personal information on unencrypted tapes that were lost in transport. On defendant’s motion for summary judgment pursuant to Federal Rule of Civil Procedure 56(c) and dismissal for lack of standing pursuant to Rule 12(b)(1), the court considered deposition transcripts and reports from proposed experts before concluding that plaintiffs’ failure to “allege in the Complaint or adduce any evidence in discovery to suggest that their alleged injuries [were] more than ‘speculative’ or ‘hypothetical’ . . . [was] fatal to their standing.”16
Data breach defendants can raise a variety of factual issues related to standing. To the extent plaintiffs claim they experienced or may experience misuse of their data or that they were forced to take steps to mitigate the risk of misuse, defendants can challenge whether plaintiffs’ information was actually accessed or stolen, whether plaintiffs face a sufficiently imminent risk of loss from the access or theft, whether plaintiffs experienced any misuse of their data, whether they experienced any loss from the misuse, whether any misuse and/or loss is causally linked to the data breach suffered by the defendant, and whether and why plaintiffs took steps to mitigate the risk of misuse. To the extent plaintiffs allege that the value of their personal information was reduced by reason of the data breach, defendants can challenge the facts underlying that claim as well—for instance, by showing that plaintiffs have never even tried to sell their personal information, that they were never forced to accept a lower price in doing so because of the breach, or that the data never even had the value plaintiffs claim it did in the first place. Likewise, to the extent plaintiffs claim that they lost the benefit of a “bargain” they had struck with defendant in which defendant promised to adequately safeguard plaintiffs’ data, defendants can show that, for instance, there was no such bargain over data security. In short, all options are on the table in a factual challenge—and as Walker demonstrates, success can mean full dismissal of the litigation.