Standing Only Gets You So Far. Scottrade Offers Tactics To Win The Data Breach Class Action War

by Orrick - Trust Anchor

A recent skirmish about standing in data breach class actions (this time in the Eighth Circuit), involving securities and brokerage firm Scottrade, suggests that, even if plaintiffs win that limited question, there are other key battles that can win the war for defendants.  As we reported with Neiman Marcus, P.F. Chang’s, Nationwide, and Barnes & Noble, the Eighth Circuit’s decision in Kuhn v. Scottrade offers important proactive steps that organizations should consider taking that can mitigate post-breach litigation exposure.


Between late 2013 and early 2014, hackers gained access to Scottrade’s customer databases and made off with personal information of more than 4.6 million users.  Scottrade’s Brokerage Agreement provided that customers would pay fees and commissions on purchase and sale of securities on a per-order basis.  The Brokerage Agreement included an addendum privacy policy and security statement describing how Scottrade would “protect [] personal and financial information that [it] collect[ed] in the course of providing financial services.”  It also specifically stated that Scottrade would “maintain physical, electronic and procedural safeguards that comply with federal regulations to guard [] nonpublic personal information,” and offer “a secure server and password-protected environment . . . protected by Secure Socket Layer (SSL) encryption.”  After Scottrade notified customers in October 2015, the plaintiff sued claiming, among other things, breach of contract and breach of implied contract.  The district court dismissed the claims for lack of standing and a single plaintiff appealed.

Yes on Standing, but Still No Claim

On appeal, the Eighth Circuit held that the plaintiff had standing regarding breach of contract and contract-related claims based on allegations that he did not receive the full benefit of his bargain with Scottrade.  Citing earlier precedent, the court explained that “a party to a breached contract has a judicially cognizable interest for standing purposes, regardless of the merits of the breach alleged.”

The court, however, dismissed the contract claims for failure to state a claim for several reasons, including:

  • The representations of security measures and conditions that Scottrade would maintain were in the nature of contract recitals, and even if Scottrade failed to meet them, they did not establish basis to bring a breach of contract claim (though they could form the basis of a fraud in the inducement or similar claim);
  • Plaintiff failed to establish any law, regulation, or specific affirmative promise that Scottrade breached regarding its security practices;
  • Plaintiff did not allege that any specific portion of his brokerage services fees went towards data protection. The Brokerage Agreement provided that customers would pay on a per-order basis, thus, it was not plausible that the failure of Scottrade’s security measures diminished the benefit of their bargain; and
  • Plaintiff did not allege a damage that is an element of a breach-of-contract claim.


The Scottrade decision highlights—yet again—that standing is not, and will not be, the final battleground for data breach class actions.  Organizations can proactively lay groundwork to make early dismissal arguments on other grounds by thinking carefully about the context and nature of statements they make about security measures.  Here are some things to keep in mind for organizations that collect or store personal information:

  • Carefully consider whether, and to what extent, you make data security representations in agreements with customers. Consider the context of such representations, and whether better placed in an online security statement, rather than in the agreement.  This can be effective for financial institutions (like securities and brokerage firms) subject to the Graham-Leach-Bliley Act and/or Regulation S-P that are required to adopt reasonably designed policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information and disclose those policies and procedures to customers yearly.
  • Even when making data security representations only in applicable privacy or security statements, consider including applicable warranty disclaimer language and merger clauses to forestall implied breach-of-contract claims and breach-of-warranty claims.
  • Most critically, regularly audit and review data security representations against current security controls and planned improvements to ensure you are doing what you said you would do, and that upcoming changes will not render any statements inaccurate.

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.

© Orrick - Trust Anchor | Attorney Advertising

Written by:

Orrick - Trust Anchor

Orrick - Trust Anchor on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.