Supreme Court Has Chance to Resolve Data Breach Harm Circuit Split

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By Daniel R. Stoller

The U.S. Supreme Court is scheduled to decide Feb. 16 whether to accept an appeal by health insurer CareFirst Inc. on how much harm stemming from a data breach is needed to support a consumer lawsuit.

Federal courts have struggled with how to apply the Supreme Court’s ruling in Spokeo Inc. v. Robins that plaintiffs must allege a harm that is “actual or imminent” rather than speculative to have federal court standing. The issue is particularly challenging in data breach cases where cybercriminals may not have used allegedly stolen consumer data, but affected individuals fear misuse of their personal information. Federal appeals courts are split on whether fear of harm is sufficient to maintain data breach litigation.

If the Supreme Court grants review, companies, consumers, and attorneys will get much needed clarity on the likelihood of their data breach claims having legs. A decision to not take up the case may signal that the high court believes the Spokeo standard is enough to provide clarity for these groups, data breach attorneys told Bloomberg Law.

“CareFirst is as good as a vehicle as any for the Supreme Court to address injury requirements in the data breach context,” Rahul Mukhi, cybersecurity and privacy counsel at Cleary Gottlieb Steen & Hamilton LLP in New York, told Bloomberg Law.

Taking the case, Mukhi said, would be “a good sign for defendants because the Court has generally trended in the direction of imposing higher standing and pleading standards on plaintiffs.” Declining the case signals it “is not troubled that different courts can apply the same Spokeo standard to come to different results even when facing similar facts,” he said.

Circuit Split

The case to be considered at the court’s upcoming conference arose out of 2015 data breach that compromised the information of 1.1 million CareFirst customers.

CareFirst asked the Supreme Court to review an August 2017 ruling by the U.S. Court of Appeals for the District of Columbia Circuit that revived class data breach claims. The D.C. Circuit joined the Seventh Circuit, which said in Remijas v. Neiman Marcus Grp.that data breaches create a substantial risk of identity theft because, presumably, the purpose of a hack is to eventually make fraudulent charges or assume the consumers’ identities.

The Sixth and Ninth Circuits have also found standing based on an increased risk of ID theft. But the Third and Fourth Circuits have concluded that such alleged injuries are too speculative.

There’s a clear “divide between some circuits that believe a mere risk of harm at some undetermined point in the future is sufficient to meet the standing requirement, and other circuits that require actual harm for standing to exist,” Alfred J. Saikali, litigation partner at Shook, Hardy & Bacon LLP’s and chair of the firm’s privacy and data security practice, told Bloomberg Law.

Although data breach cases have been difficult to prove at earlier stages of trial, the high court may be able to clarify for plaintiffs’ lawyers what level of harms are needed to bring such cases.

“Data breaches do real harm by increasing the risk of future serious problems” but “causation is very difficult to prove,” Ray E. Gallo, senior partner at plaintiff-side litigation firm Gallo LLP in San Rafael, Calif., told Bloomberg Law. For example, “if you have identity theft, how do you prove where the unknown thief got the data?”

Even if clarity is provided, the plaintiffs’ bar isn’t likely to bring weak cases .

“Plaintiff’s lawyers work on contingency—so they don’t file cases they’re probably going to lose,” Gallo said.

The case is ( CareFirst, Inc. v. Attias , U.S., No. 17-641, court conference 2/16/18 ).

By Daniel M. Stoller

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