Privacy Advisor

Supreme Court Wiretap Ruling Upholds Stringent Standing-To-Sue Requirements

May 1, 2013

By Shannon Tan

The U.S. Supreme Court’s recent ruling in a case about warrantless wiretapping could make it easier for companies to seek early dismissal of consumer data breach and privacy lawsuits.

In Clapper v. Amnesty International USA, the Supreme Court upheld the stringent requirements under Article III of the U.S. Constitution for a plaintiff to have standing to sue in privacy cases. To establish standing to sue, a plaintiff must show that the threatened harm is “certainly impending” and not merely speculative. A plaintiff also cannot manufacture Article III standing by incurring costs in order to avoid hypothetical future harm. The Supreme Court concluded that neither the plaintiffs’ fear that the government might monitor future communications with likely targets of surveillance nor the expenditures incurred to avoid monitoring were sufficient to confer standing.

Clapper will likely prove useful in cases where there is no evidence that the data breach actually resulted in identity theft or other fraudulent use. Companies can argue that such cases should be quickly tossed out because the consumers are unable to meet the strict standing threshold set by Clapper.

Standing in privacy cases

Standing is one of the first hurdles plaintiffs filing privacy cases in federal court have to overcome before getting to the merits of their case. Injury-in-fact, an essential element to demonstrate standing, requires a “concrete, particularized and actual or imminent” injury. Courts, however, have been split over whether the alleged increased risk of harm following a data breach is sufficient to confer standing upon plaintiffs.

Some circuits, such as the Seventh and Ninth Circuits, have concluded that where the plaintiffs’ personal information was stolen but not misused, the increased risk that the data would be misused in the future was sufficient to confer Article III standing. Other circuits, such as the Third Circuit, have found that there was no standing when the plaintiffs did not allege that their data was misused, while the First Circuit rejected a standing argument where the plaintiff failed to claim that the information had actually been accessed by an unauthorized user.

Courts have also been all over the map in non-data breach privacy cases. District courts have been reluctant to find standing based solely on a theory that an app store developer’s actions increased the risk to the security of sensitive personal information. Other courts, however, have granted Article III standing whenever a plaintiff alleged a statutory violation, even when the alleged violation did not cause actual harm or injury. Last year, the U.S. Supreme Court declined to decide in First American Financial Corp. v. Edwards whether plaintiffs can show harm through a statutory violation or must establish standing through an actual injury.

While Clapper may not have much of an impact on privacy cases involving allegations of statutory violations, the decision effectively resolves the inconsistency over the standing requirements for data breach and privacy cases where the personal information was not actually misused. Companies defending data breach claims can now rely on Clapper to make the following arguments in support of a motion to dismiss:

    Scenario One: A company’s website was hacked and sensitive personal information was exposed. The unknown hacker was able to obtain access to plaintiffs’ information. The hacker may or may not have read, copied or understood the information.

This theory of standing relies on a string of hypothetical possibilities, namely that the hacker read, copied and understood the information; intends to commit future criminal acts by misusing the information; actually attempts to use the information, and is able to use such information by making unauthorized transactions.

As the Supreme Court stated in Clapper, standing theories that “rest on speculation about the decisions of independent actors” will not hold water. The speculative fear that an unknown third party might misuse the information at some point in the future is insufficient to demonstrate the imminent harm required to establish Article III standing.

    Scenario Two: A company laptop containing unencrypted personal information was stolen. There is no evidence to suggest that the information has been or will be misused.

The actions of a third-party criminal are too unpredictable because he or she may not access the information or even possess the ability to commit identity theft or fraud using the information obtained. This theory requires a court to make assumptions about the skills and intent of the third party even though the laptop may have not been stolen by a person intent on identity theft and the person may not be able to use the personal information to commit financial harm.

    Scenario Three: Plaintiffs claim that the increased risk of identity theft following a privacy breach forced them to purchase identity theft insurance. They also contend that they shelled out time and money monitoring their credit and closing and opening financial accounts.

Consumers cannot create Article III standing simply by racking up expenditures such as credit-monitoring costs to guard against a fear of future identity theft or other financial harm. The Supreme Court has stated that an enterprising plaintiff cannot “secure a lower standard for Article III standing simply by making an expenditure based on a nonparanoid fear.”

Shannon Tan is an associate corporate counsel for Raymond James Financial, Inc., in St. Petersburg, FL, focusing on contract drafting and privacy matters. She advises on privacy issues in areas such as compliance with privacy laws and regulations, breach notification and data protection. Shannon can be reached at Shannon.Tan@raymondjames.com.