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Fourth Circuit Weighs in on Standing in Data Breach Litigation

Cybersecurity incidents are on the rise, and so too is data breach litigation brought by plaintiffs who allege they were harmed by the unauthorized exposure of their personal information. Federal circuits across the United States are grappling with the issue of what satisfies the Article III standing requirement in data breach litigation, when often only a “risk of future harm” exists.

The United States Court of Appeals for the Fourth Circuit (“the Fourth Circuit”) is the latest circuit court to weigh in on standing in data breach litigation. In Hutton v. National Board of Examiners in Optometrythe court held that the plaintiffs satisfied the Article III standing requirement by alleging hackers stole and misused their personally identifiable information (PII), even though no financial loss was incurred. Circuit courts have been split on the issue of standing in the data breach context, with some courts finding standing where only a heightened “risk of future harm” exists, i.e. the likelihood that stolen data may be misused (Sixth, Seventh, and Ninth Circuits), while other circuit courts require actual harm such as financial loss (Second, Third, and Eighth Circuits). The Fourth Circuit in Hutton has reached a middle ground finding that actual theft and misuse of the PII satisfied the standing threshold, even though no pecuniary damages resulted.

In Hutton, the plaintiffs, members of the National Board of Examiners in Optometry (NBEO), noticed that credit card accounts were fraudulently opened in their names, which required knowledge of their social security numbers and dates of birth. Although the NBEO never admitted to a security breach, plaintiffs concluded that the NBEO was the only common source to which they had provided their personal information. As a result, plaintiffs filed a lawsuit alleging the NBEO failed to adequately safeguard their personal information.

The NBEO filed a motion to dismiss arguing that although fraudulent credit card accounts were opened, no actual harm had occurred, and thus the plaintiffs lacked Article III standing to sue. The U.S. District Court for the District of Maryland granted the NBEO’s motion, finding, inter alia, that plaintiffs failed to sufficiently allege they had suffered an “injury-in-fact” because they had incurred no fraudulent charges and had not been denied credit or required to pay a higher credit rate as a result of the fraudulent credit card accounts.

The Fourth Circuit, however, reversed the district court’s holding, concluding that credit card fraud and identity theft alone were sufficient to establish Article III standing. The court distinguished Hutton, from their ruling in Beck v. McDonald, in which the court concluded that the plaintiffs lacked standing because they only alleged a “threat of future injury” – laptops and boxes were stolen containing personal information, but that information was not misused. In Hutton, the court emphasized, unlike in Beck, plaintiffs were “concretely injured” as credit card accounts were open without their knowledge or approval, qualifying as misuse, even if fraudulent charges were yet to occur.

The circuit court split on the issue of Article III standing has made it difficult for businesses to assess the likelihood of litigation and its associated costs in the wake of a data breach. Until the Supreme Court weighs in on this issue, it is crucial for businesses to assess their breach readiness and develop an incident or breach response plan that takes into consideration the possibility of litigation.

Jackson Lewis P.C. © 2019

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About this Author

Principal

Joseph J. Lazzarotti is a Principal in the Morristown, New Jersey, office of Jackson Lewis P.C. He founded and currently helps to co-lead the firm's Privacy, e-Communication and Data Security Practice, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals.

In short, his practice focuses on the matrix of laws governing the privacy, security and management of data, as well as the impact and regulation of social media. He also...

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Jason C. Gavejian, Employment Attorney, Jackson Lewis, Principal, Restrictive Covenants Lawyer
Principal

Jason C. Gavejian is a Principal in the Morristown, New Jersey, office of Jackson Lewis P.C. and a Certified Information Privacy Professional (CIPP/US) with the International Association of Privacy Professionals.

Mr. Gavejian represents management exclusively in all aspects of employment litigation, including restrictive covenants, class-actions, harassment, retaliation, discrimination and wage and hour claims in both federal and state courts. Additionally, Mr. Gavejian regularly appears before administrative agencies, including the Equal Employment Opportunity Commission, the Office for Civil Rights (OCR), the New Jersey Division of Civil Rights, and the New Jersey Department of Labor. His practice also focuses on advice/counseling employers regarding daily workplace issues.

Mr. Gavejian represents companies with respect to inquiries from the HHS/OCR, state attorneys general, and other agencies alleging wrongful disclosure of personal/protected information. Mr. Gavejian negotiates vendor agreements and other data privacy and security agreements, including business associate agreements. His work in the area of privacy and data security includes counseling and coaching clients through the process of investigating and responding to breaches of the personally identifiable information (PII) or protected health information (PHI) they maintain about consumers, customers, employees, patients, and others, while also assisting clients in implementing policies, practices, and procedures to prevent future data incidents.

Mr. Gavejian’s litigation experience, coupled with his privacy practice, provides him with a unique view of many workplace issues and the impact privacy, data security, and social media may play in actual or threatened lawsuits.

Mr. Gavejian regularly provides training to both executives and employees and regularly speaks on current privacy, data security, monitoring, recording, BYOD/COPE, biometrics (BIPA), social media, TCPA, and information management issues. His views on these topics have been discussed in multiple publications, including the Washington Post, Chicago Tribune, San Francisco Chronicle (SFGATE), National Law Review, Bloomberg BNA, Inc.com, @Law Magazine, Risk and Insurance Magazine, LXBN TV, Business Insurance Magazine, and HR.BLR.com.

Mr. Gavejian is the Co-Chair of Jackson Lewis’ Hispanic Attorney Resource Group, a group committed to increasing the firm’s visibility among Hispanic-American and other minority attorneys, as well as mentoring the firm's attorneys to assist in their training and development. Mr. Gavejian also previously served on the National Leadership Committee of the Hispanic National Bar Association (HNBA) and regularly volunteers his time for pro bono matters.

Prior to joining Jackson Lewis, Mr. Gavejian served as a judicial law clerk for the Honorable Richard J. Donohue on the Superior Court of New Jersey, Bergen County.

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Attorney

Maya Atrakchi is the Knowledge Management (“KM”) Attorney for Jackson Lewis P.C.’s Privacy, e-Communication and Data Security and International Employment Issues Practice Groups, and is based in the New York City, New York, office of Jackson Lewis P.C.

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