On March 7, 2018, the United States District Court for the District of Minnesota dismissed a putative data breach class action against SuperValu, Inc., because the plaintiffs did not have standing and could not state claims upon which relief could be granted. The Court’s opinion in In re SuperValu, Inc. Customer Data Security Breach Litigation identifies a successful path for companies seeking to dismiss data breach class actions: seek dismissal not only for defects in standing, but also for failure to state a claim.
In June 2014, hackers installed malicious software on SuperValu’s payment processing network. Sixteen SuperValu customers subsequently brought or joined putative class actions, alleging that they had used credit or debit cards at SuperValu and that their personal identifying information (PII), including their account numbers, expiration dates, and card verification value codes, had been stolen. Plaintiffs brought a number of claims, including for negligence, breach of contract, and under state consumer protection statutes.
The Hon. Ann D. Montgomery, United States District Judge for the District of Minnesota, first granted a motion to dismiss the case in January 2016. Judge Montgomery dismissed the case at that time because Plaintiffs had not alleged facts sufficient to establish standing under Article III of the Constitution. In particular, Plaintiffs had failed to allege that their PII had been misused, and had not alleged facts that plausibly suggested a substantial risk of future harm.
On appeal, the United States Court of Appeals for the Eighth Circuit affirmed in part and reversed in part. It affirmed dismissal of the lawsuits of 15 of the 16 Plaintiffs because none of them had alleged that their PII had been misused; they had only alleged a “mere possibility,” rather than a “substantial risk,” of future injury. The Eighth Circuit reversed as to one remaining plaintiff, David Holmes, because he had alleged that his PII was stolen and misused in a single fraudulent charge. The Eighth Circuit remanded so Judge Montgomery could consider whether Holmes’s allegations satisfied more rigorous standards under Rule 12(b)(6).
The Court’s Reasoning
On remand, SuperValu renewed its motion to dismiss, alleging that Holmes had not alleged that he shopped at SuperValu during the operative period or that he had suffered economic injury as required under governing law. Judge Montgomery agreed and granted SuperValu’s motion to dismiss each of Holmes’s claims:
- Holmes’s negligence claim did not survive dismissal because under governing law, a plaintiff must allege actual out-of-pocket loss, not just an unauthorized charge. Holmes did not allege the date he shopped at a SuperValu store, the amount of the unauthorized charge, or that the charge was not reimbursed by his credit card company. Because he didn’t do any of those things, he did not establish the requisite elements of causation or injury for his claim to survive dismissal. In the alternative, the Court also concluded that the economic loss doctrine, which prohibits recovery for purely economic claims sounding in negligence, barred Holmes’s negligence claim.
- Holmes’s breach-of-contract claim failed because Holmes never alleged that he was a party to a contract with SuperValu, and also did not allege that he had suffered an actual injury.
- Holmes’s claims under Illinois consumer protection statutes failed because Holmes did not allege that he suffered actual monetary loss. Thus, similar to Holmes’s negligence claim, the allegation of an unauthorized charge was insufficient to survive dismissal.
- Holmes’s unjust enrichment claim failed because Holmes did not allege that the goods he purchased from SuperValu were defective or that their value was somehow diminished by the data breach.
Finally, Judge Montgomery denied the Plaintiffs’ request to amend their complaint, both because it was untimely, and because it would have been futile. As to the latter reason, Judge Montgomery held that new allegations did not establish the substantial risk of future harm as required to establish standing under Article III of the Constitution.
Defense Strategy: Move to Dismiss for Both Lack of Standing and Failure to State a Claim
This case shows the benefit of a multi-front attack to data breach class actions: motions to dismiss (1) for lack of standing; and (2) for failure to state a claim. Both approaches attack allegations of a plaintiff’s injury, but a motion to dismiss for failure to state a claim can be particularly valuable, because even where an alleged injury will establish standing under the Constitution (for example, an allegation that the plaintiff incurred an unauthorized charge), the law governing the merits of the claims might require more (as it did here, where it required actual, out-of-pocket loss, and allegations linking that monetary loss to the data breach).