Data Breach Lawsuits: Challenges Persist After Spokeo v. Robins

By: Nicole Kardell

Data breaches are as common as the common cold—unfortunately, just as incurable. Run a news search on “data breaches” and you’ll find that all kinds of institutions—major retailers, tech companies, universities, even government agencies—have been vulnerable at some point. Now run a search on “data breaches,” but include the word “lawsuit.” You’ll find that many of these cases are going to court, but ultimately getting dismissed. What’s going on?

First, you should look at some of these lawsuits more closely: are they filed against the alleged perpetrators of the data breach? Many of them aren’t; those perpetrators are usually hackers who live outside the country or are unable to pay a money judgment. (In legal parlance, that’s known as being judgment proof.) Faced by those limitations, individual victims of data breaches frequently settle for the next best thing: going after the institutions that endured the breach.

Often, this isn’t fair—the institutions are victims too. The point here is that although going after the institutions looks like an easy win from “deep pockets,” that seldom turns out to be the case.

Plaintiffs in data breach cases, which are usually class actions, need to demonstrate liability on the part of the institution. Much of the time, they rest their case on either negligence or breach of contract claims. Both legal theories require the plaintiff to show the same things: 1) that the defendant had a clear duty to protect the plaintiff’s data, 2) that the defendant breached that duty, and 3) that the plaintiff sustained injury as a result. (For breach of contract, plaintiffs must point to a concrete or sufficiently implicit contract that binds the institution to the stated responsibilities; often this is the institution’s privacy policy.) Plaintiffs typically argue that the institution had an obligation to take precautionary measures against data breaches but failed, and therefore caused injury to the plaintiffs.

It’s with the third and final point—demonstrating injury—that plaintiffs have the most trouble. Why? Because courts view injury in fiscal terms; you need to show that you actually lost something, not simply that you might. So even if you were the victim of a data breach, as long your data hasn’t yet been compromised, it doesn’t really count as injury.

There have been exceptions, when the court greenlit cases based mainly on speculative injury, but these usually ended in a settlement before a legal precedent could be set. (See cases against Home Depot, Target, Adobe, and Sony.) For the most part, the fiscal view of injury has prevailed—reinforced in 2013, when the Supreme Court, weighing in on Clapper vs Amnesty Int’l, determined that a plaintiff cannot proceed with a data breach lawsuit unless he or she can demonstrate actual injury or at least imminent threat of injury, each one measurable in economic loss. Otherwise, mere perception of injury is too tenuous to establish legal standing, which a case requires to go forward, and the lawsuit will probably get tossed.

The challenge of establishing legal standing recently made its way to the Supreme Court in Spokeo v. Robins. In that case, a plaintiff filed suit against the “people search engine” Spokeo for publishing false information about him. The issue before the Court was this central question of how much injury must be shown for a case to go forward. Prospective plaintiffs were optimistic that the high court would affirm a lower court’s decision that speculative injury was indeed enough. Alas, the Supreme Court sidestepped the issue and punted it back to the lower court for further review. The Court nonetheless reinforced the general tenets that, for a plaintiff to have standing to bring a case, he must allege an “injury in fact” that is both “concrete and particularized.” There is still room for the lower court to broaden the approach to what constitutes an injury, but the Supreme Court’s ruling keeps the status quo in place.

For now, individuals whose data has been compromised generally must be satisfied with what the institutions offer them after a breach occurs: free credit checks and/or access to credit monitors. Do checks and monitoring seem inadequate? Not if you think about what type of harm people face after a data breach. Individuals can detect and report problems in the event someone actually misuses their data. If they keep on top of it, their credit scores will not be impacted. Moreover, credit card companies and other financial institutions will bear the cost of any unapproved charges. In the event of further problems, plaintiffs can then take their injury to the legal system and have their day in court. But at this point, the courts are right to keep this type of class action litigation at bay.