Court Dismisses Data Breach Class Action for Lack of Article III Standing

by Traub Lieberman Straus & Shrewsberry LLP

Last month in its decision in In re Sci. Applications Int’l Corp. (SAIC) Backup Tape Data Theft Litigation, 2014 U.S. Dist. LEXIS 64125, the United States District Court for the District of Columbia dismissed all but two claims in a consolidated data breach class action law suit on the basis that the plaintiffs lacked requisite constitutional standing to sustain the litigation.

The class action arose out of a 2011 data breach, specifically, the theft of unencrypted backup tapes that contained Protected Health Information (“PHI”) for millions of military members and their families from the parked car of an SAIC employee.

phiPlaintiffs, who are potential victims of the data breach, filed the consolidated law suit alleging harm from an increased likelihood of identity theft and from an invasion of their privacy, among other things.  Defendant filed a motion to dismiss arguing that the Plaintiffs lack standing to pursue relief since they cannot allege that they suffered an actual cognizable injury.

In granting the motion to dismiss, the Court agreed with a developing body of law “that the mere loss of data – without evidence that it has been either viewed or misused – does not constitute an injury sufficient to confer standing.”

The Court cited the 2013 U.S. Supreme Court case, Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013) for the following principles as they relate to Article III standing, namely that “an injury must be present or certainly impending, that an attenuated chain of possibilities does not confer standing, and that plaintiffs cannot create standing by taking steps to avoid an otherwise speculative harm”. Clapper, 133 S. Ct. at 1151.

For the SAIC Plaintiffs, however, the Court found that increased risk of identity theft and monitoring costs were entirely speculative and dependent on the unknown actions of the person or persons that stole the tapes.   While the Court was sympathetic to the uncertainty encountered by plaintiffs as to whether their personal information would be misused, the threatened risk did not constitute an actual injury to confer standing. Likewise, monitoring costs to prevent future harm was not enough to confer standing where plaintiffs failed to show identify theft was impending or a “substantial risk” to the group. The Court also refused to confer standing based on plaintiffs’ “invasion of privacy” claims holding that the majority of plaintiffs have not (or could not) allege that their personal information had been disclosed to a third party, and thus, any injury was, at best, speculative.

In analyzing the SAIC Plaintiffs’ case for injury, the Court noted the “attenuated chain of possibilities” under which many of the class-action Plaintiffs could potentially suffer damages arising out of the data breach (the risk of identity theft):

For identity theft to occur … the following chain of events would have to transpire: First, the thief would have to recognize the tapes for what they were, instead of merely a minor addition to the GPS and stereo haul. Data tapes, after all, are not something an average computer user often encounters. The reader, for example, may not even be aware that some companies still use tapes – as opposed to hard drives, servers, or even CDs – to back up their data… Then, the criminal would have to find a tape reader and attach it to her computer. Next, she would need to acquire software to upload the data from the tapes onto a computer – otherwise, tapes have to be slowly spooled through like cassettes for data to be read.  After that, portions of the data that are encrypted would have to be deciphered. Once the data was fully unencrypted, the crook would need to acquire a familiarity with TRICARE’s database format, which might require another round of special software. Finally, the larcenist would have to either misuse a particular Plaintiff’s name and social security number (out of 4.7 million TRICARE customers) or sell that Plaintiff’s data to a willing buyer who would then abuse it.

The Court cited its general “reluctan[ce] to grant standing where the alleged future injury depends on the actions of an independent third party” and granted the Defendant’s application.

In re SAIC follows the 2013 decision in In re Barnes & Noble Pin Pad, 2013 U.S. Dist. LEXIS 125730, (N.D. Ill. Sept. 3, 2013), where the Court also cited Clapper in dismissing data breach claims for lack of Article III standing.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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