A quick glance at industry headlines reveals that the threat of a data breach impacts all companies that collect consumers’ and employees’ personal information. Not surprisingly, as the number of data breaches increases, so does the frequency of class actions. Class representatives in data breach typically sue companies alleging future harm they may suffer should the compromised information be used to commit credit, identity, or some other fraud. Because the likelihood of any such future harm is speculative, however real the threat, the damages they seek include costs incurred to prevent against that potential future threat. Money spent on credit and identity theft protection mitigates their potential future damages.
Typically these data breach cases are dismissed “early” in litigation. Some courts hold that the speculative nature of the alleged injurypossible future credit or identity frauddoes not confer standing under Article III of the Constitution because it does not allege an injury-in-fact. Other courts find that mitigation damages do not constitute a cognizable injury sufficient to state a claim. Regardless of whether courts dismiss for lack of standing, lack of cognizable injury, or both, the fact remains that data breach cases do not pass judicial muster. Given the ongoing (but eroding) reluctance by federal courts to allow plaintiffs to proceed, a recent Court of Appeals decision raises questions regarding the strength of these defenses.
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