Category Archives: Risk Management

Network Security, Privacy, Risk Management

California Rakes in $25 Million from Comcast

On September 17, 2015, a California Judge approved a final stipulated judgment between media giant Comcast and the California Public Utilities Commission.  In Paragraph 17 of the Complaint filed the same day, Comcast was not exactly accused of heinous conduct:  “for varying periods of time between July 2010 to December 2012, and for many customers the entire period, approximately 75,000 Comcast residential subscribers in California who had paid Comcast the monthly fee for a non-published or non-listed phone number nevertheless had their subscriber listing information published on Ecolisting, and (in some cases) in phone books, and/or made available by a directory assistance provider.”

In other words, Comcast customers who paid to avoid potentially being listed on sites such a whitepages.com were inadvertently deprived of that purchased service.  Specifically, because “the ‘privacy flag’ was not attached to the listings of approximately 75 ,000 non-published/non-listed subscribers, Neustar provided those listings to Comcast’s vendor, Microsoft FAST, who then published them for Comcast on the Ecolisting website.”  Complaint at ¶ 15.

No financial data was exposed.  No transaction or business data was exposed.  No medical data was exposed.  No emails or passwords were compromised.  Indeed, the only information exposed was the very same information that could be obtained by anyone doing a few sophisticated Google searches – names, addresses, and phone numbers.   For most people, such information exists online independently of any Comcast action or inaction.   In other words, whether or not Comcast properly withheld such information would not likely prevent someone from finding it online.

As part of the settlement, Comcast must pay $25 million in penalties and investigative costs to the California Department of Justice and the California Public Utilities Commission.   The 75,000 customers who were “compromised” ended up with refunds and $100 more in restitution added to their Comcast bills.

And, as part of the stipulated judgment, Comcast also agreed to a permanent injunction that requires the company to strengthen the restrictions it places on its vendors’ use of personal information about customers.  The injunction also requires Comcast to provide a new disclosure form to all customers that explains the ways in which it uses unlisted phone numbers and other personal information.  Such restrictions and added duties have little to do with the actual transgression in question — they represent added gimmes obtained by the California AG’s office given the leverage it had over Comcast.

This case is yet another wake-up call to companies maintaining or processing large amounts of customer data.  Even though the Comcast settlement is somewhat unique given the nature of the information as well as the “unlisting service” provided, other companies also safeguard what may otherwise be publicly available information.  When there are assurances made that such information will be safeguarded, does that automatically elevate the value of the information?

The larger question is how can a transgression with no ostensible harm mushroom into a $25 million payment to a governmental agency?  Until a General Counsel can answer that question with definite certainty, the only course of action is to treat all customer data equally and ensure the requisite reasonable precautions undertaken to safeguard such information matches or exceeds what is considered state-of-the-art for that company’s industry sector.

Network Security, Privacy, Risk Management

Third Circuit Affirms Judge Salas in FTC v. Wyndham

In a 47-page ruling, the United States Court of Appeals for the Third Circuit affirmed today an April 7, 2014 ruling of Judge Esther Salas against Wyndham Worldwide.  In affirming the district court ruling, the Third Circuit left intact Judge Salas’s decision that the FTC has power to regulate “unfair trade practices” based on the alleged failed data security of Wyndham.

The Third Circuit recast Wyndham’s argument and ultimately rejected what was potentially viable on appeal as “[t]oo little and too late.”  As recognized by the Court:

Wyndham repeatedly argued there is no FTC interpretation of § 45(a) or (n) to which the federal courts must defer in this case, and, as a result, the courts must interpret the meaning of the statute as it applies to Wyndham’s conduct in the first instance. Thus, Wyndham cannot argue it was entitled to know with ascertainable certainty the cybersecurity standards by which the FTC expected it to conform. Instead, the company can only claim that it lacked fair notice of the meaning of the statute itself – a theory it did not meaningfully raise and that we strongly suspect would be unpersuasive under the facts of this case..

In what was a sua sponte rejection of Wyndham’s “implied” argument that it was not provided with sufficient statutory notice of the century-old Federal Trade Commission Act, the Court of Appeals recognized:

Moreover, Wyndham is entitled to a relatively low level of statutory notice for several reasons. Subsection 45(a) does not implicate any constitutional rights here. [citation omitted] It is a civil rather than criminal statute. [citation omitted] And statutes regulating economic activity receive a “less strict” test because their “subject matter is often more narrow, and because businesses, which face economic demands to plan behavior carefully, can be expected to consult relevant legislation in advance of action.” [citation omitted]

In other words, one of Wyndham’s arguments deemed potentially viable, i.e., that it should not be held to a standard never actually put forth by the FTC in any prior ruling, will likely be rejected on summary judgment.    According to the Court, the relevant standard “considers a number of relevant factors, including the probability and expected size of reasonably unavoidable harms to consumers given a certain level of cybersecurity and the costs to consumers that would arise from investment in stronger cybersecurity.”  It is this applicable standard that the Court found Wyndham should have been on notice of prior to the FTC Complaint being filed against it.

In a section of the opinion that may come back to haunt Wyndham – as well as future victims of a major data incident, the Court was quite blunt in its assessment as to whether this statutory standard was potentially satisfied.  Id. at 41 (“Wyndham’s as-applied challenge is even weaker given it was hacked not one or two, but three, times. At least after the second attack, it should have been painfully clear to Wyndham that a court could find its conduct failed the cost-benefit analysis. That said, we leave for another day whether Wyndham’s alleged cybersecurity practices do in fact fail, an issue the parties did not brief. We merely note that certainly after the second time Wyndham was hacked, it was on notice of the possibility that a court could find that its practices fail the cost-benefit analysis.”).

The import of this decision obviously reaches well beyond the Third Circuit.  As the only appellate court to affirm the FTC’s authority to enforce what it considers applicable cybersecurity standards — “standards” that no other governmental body uses as aggressively as the FTC, the FTC will have even greater leverage in future settlement agreements.  Given the scorched earth tactics taken during this litigation, it is possible the United States Supreme Court will be asked by Wyndham to weigh in.   There is certainly an argument to be made that Wyndham’s time and money would be better spent mending fences with the FTC.

UPDATE:   On the heels of this victory, the FTC announced on August 28, 2015 that it was going to hold a free “PrivacyCon” conference on January 14, 2016 at its Constitution Center offices.  According to the event description, PrivacyCon will “bring together a diverse group of stakeholders, including whitehat researchers, academics, industry representatives, consumer advocates, academics, and a range of government regulators, to discuss the latest research and trends related to consumer privacy and data security.”  Given that there is a call for “presentations seeking original research on new vulnerabilities and how they might be exploited to harm consumers” hopefully the attendee list to this free event does not have too many “John Smiths” listed.

Network Security, Privacy, Risk Management

NJDC Affirms FTC Regulatory Power Regarding Data Security Practices

Judge Esther Salas of the United States District Court of New Jersey ruled today that a Section 5 action brought by the FTC was sustainable against Wyndham Worldwide Corporation (“Wyndham Worldwide”) as well as various corporate affiliates primarily involved in the franchise side of its business.  This decision re-affirmed the FTC ‘s power to regulate “unfair trade practices” based on the failed data security of companies.   Judge Salas denied a motion to dismiss a FTC action based on the alleged violation of both the deception and unfairness prongs of Section 5(a) “in connection with Defendants’ failure to maintain reasonable and appropriate data security for consumers’ sensitive personal information.”  Wyndham Worldwide also looked to dismiss the action given the consumer representations made by some corporate affiliates were not intended to be applicable to all corporate affiliates.

In what Wyndham Worldwide considered a matter of first impression, the Court rejected Wyndham Worldwide’s position that the FTC does not have authority to bring an unfairness claim involving lax data security.  Another allegedly unique aspect of this case turns on the fact the corporate affiliate who initially sustained the data incident and also made most of the representations in question (Wyndham Hotels and Resorts, LLC) was able to implicate its corporate parent.

This decision is a rare judicial affirmation of the FTC’s broad power to assert itself in the data protection activities of companies. Typically, the FTC simply obtains consent as a byproduct of a settlement agreement.  Hacked companies routinely acknowledge the FTC’s power in this regard.

Although this decision merely resolves a motion to dismiss — with liability issues left unresolved, privacy practitioners who visit with the FTC should review Judge Salas’ opinion and continue to track this matter.  Given the hard public positions taken by Wyndham and the FTC,  this case may very well end up in the Third Circuit or even the Supreme Court — eventually leading to an appellate court potentially defining the exact contours of the FTC’s authority to regulate hacked companies.

Network Security, Privacy, Risk Management

October is National Cyber Security Awareness Month

National Cyber Security Awareness Month is being sponsored by the Department of Homeland Defense as well as the National Cyber Security Alliance and the Multi-State Information Sharing and Analysis Center.   In a Presidential Proclamation, President Obama called “upon the people of the United States to recognize the importance of cybersecurity and to observe this month with activities, events, and trainings that will enhance our national security and resilience.”  Many of the same corporations and universities who promote Privacy Day in January also promote NCSAM in October.

According to the FBI, since the first NCSAM was celebrated nine years ago the network security threat has continued to grow even more complex and sophisticated — “Just 12 days ago, in fact, FBI Director Robert Mueller said that ‘cyber security may well become our highest priority in the years to come.'”

There is no denying the obvious good in promoting security awareness and diligence.  It is hoped, however, that a month devoted to “cyber security awareness” does not inadvertently dilute the more important message that security diligence is something that should be done every day of the year.   On the other hand, to the extent NCSAM’s “Stop.Think.Connect.” message touches even one small business owner in Des Moines and makes her less likely to fall victim to a phishing exploit in the future, NCSAM will be a success.

Privacy, Risk Management

Basketball, Julius Caesar, and Privacy

March Madness and murdered dictators aside, next month may be memorable for significant new privacy polices and obligations coming online — especially those for vendors holding sensitive information of a Massachusetts resident.  Given the expiration of a two-year grace period, Massachusetts will require effective March 1, 2012 that all service provider contracts include provisions requiring that the service provider  implement and maintain security measures for personal information that is consistent with the Standards for the Protection of Personal Information of Residents of the Commonwealth, 201 CMR 17.00.

A service provider must comply with this regulation if it “receives, stores, maintains, processes, or otherwise has access to personal information” of Massachusetts residents, e.g., social security numbers, driver license numbers, and financial account information,  in connection with the provision of goods or services or in connection with employment.  For compliance purposes, it does not matter whether the service provider actually maintains a place of business in Massachusetts.    In addition, those companies who are subject to the regulation must oversee service providers by taking reasonable steps to select and retain service providers who are compliant.  Penalties for non-compliance can be enforced through the Massachusetts Consumer Protection Statute and include penalties under that law as well as possible civil penalty of up to $5,000 for each violation, plus reasonable costs of investigation and attorney’s fees.

On the consumer side, starting March 1, 2012, Google’s new privacy policy will bring together its various privacy documents into a single umbrella privacy policy.  After being implemented, logged in users will be treated as a single user across  all Google products.   Concern over the way Google’s new policy would grant the data aggregator control over user data and allegedly “hold hostage” consumer personal information has caused attorney generals from around the country to reach out to Google.    Not one to miss out on the fun, one EU regulator has chimed in claiming that it is “deeply concerned” about the new Google policy.  And, EPIC even filed suit to enforce a FTC settlement in its effort to stop the March privacy change — a lawsuit that was dismissed on February 24, 2012.   Given it will likely be implemented in a few days, consumers wanting to avoid some of the potential privacy sting of these changes can heed some advice from the EFF.

Finally, on March 7, 2012, HHS is scheduled to publish in the Federal Register its final proposed rule regarding what constitutes “meaningful use” of EHR sufficient to trigger incentive payments under the HIITECH Act.  A draft of the proposed rule is currently  available.   It remains to be seen whether this push for EHR usage will ultimately add or subtract to healthcare data breaches.  

As it stands, a HIPAA covered entity must provide notice to the HHS Secretary “without unreasonable delay and in no case later than 60 days from discovery of the breach” impacting 500 or more individuals.  To assist in reporting, there is even an online means of disclosing breaches.  The current list of all such disclosed breaches is publicly available; and not surprisingly, incidents have been steadily increasing as per an analysis done by OCR of breaches occurring in 2009 and 2010. 

The annual OCR report indicates that larger breaches occurred “as a result of theft, error, or a failure to take adequate care of protected health information.”  OCR Report at 9.  It is not difficult to imagine efforts to obtain governmental incentive payments by achieving meaningful EHR usage — as the term will be further refined in March — may actually  cause an uptick in breaches.    Despite having a requirement that every EHR Module be certified to a “privacy and security” certification criteria — which will ultimately be determined by the HHS Secretary, these incentive payments will continue to be tied to usage and not necessarily verifiable compliance with a security standard.   Given that HITECH’s financial incentives remain based on usage and not protection, “sticks” such as reductions in Medicare payments and stiff HITECH fines will continue to be the only real governmental incentive to maintain adequate protection.   It would be nice if HHS, instead, developed a financial incentive or reward program for those firms who go the extra distance (as per NIST standards) when providing security.  Maybe such a program will make the agenda after the OCR releases a few more breach reports.

Privacy, Risk Management

EU Data Breach Notification in 24 Hours?

On January 25, 2012, the European Union will announce a comprehensive reform of its data protection rules.  This proposed shift will likely toughen existing data-protection requirements and, according to one published report, will include a new rule requiring companies to disclose data breaches within 24 hours of the breach – in effect leapfrogging the toughest existing breach notification laws of the United States.   The EU’s initial Data Protection Directive does not even have a breach notification requirement.

The proposed retooling of the 1995 Directive will also likely prod national data-protection authorities within the 27-member EU to assess administrative sanctions and fines.  Interestingly, an EU conference will be held in Washington, D.C. on March 19, 2012 to obtain feedback from US stakeholders.  One issue that will likely be aired at this D.C. conference is a potential new EU privacy right “to be forgotten” — a hot topic at the most recent International Conference of Data Protection and Privacy Commissioners.   Viviane Reding, Vice-President of the European Commission and EU Justice Commissioner, has recently publicly called for such a right:  “I also want to create a right to be forgotten, which will build on existing rules to better cope with privacy risks online. If an individual no longer wants their personal data to be processed or stored by a data controller, and if there is no legitimate reason for keeping it, the data should be removed from their system.”

Although the proposed new directive framework to be announced on January 25, 2012 will take some time to be implemented by EU member countries and then enforced by the respective member Data Protection and Privacy Commissioners, it is clear that the EU privacy world will soon be changing in a dramatic way.  Those firms processing personal data within the EU are well advised to take notice and prepare for potential new obligations and privacy requirements.

Update:  January 25, 2012
The new proposed set of rules will indeed morph into “big news” if ultimately passed.  First of all, the 1995 Directive will be repealed in favor of a consistent approach for all member states.   In fact, these new rules might also  impact US businesses to the extent they process EU protected data and have a EU presence.  In a nod to harmonization hawks, only one member state would have authority to regulate a particular business even if the data was processed among several member states — jurisdiction will ultimately be determined by domicile or where the bulk of processing takes place.

As reported, the proposed new rules do, indeed, have a proposed notification provision that requires notification “without undue delay and, where feasible, not later than 24 hours of becoming aware of [the breach]”.   And, there is also a new “right to be forgotten” that is created via these new rules.  Top fines that can be levied for non-compliance of these rules can reach up to 2% of a firm’s gross worldwide turnover (“revenue”).

There are other noteworthy changes so it is definitely worth taking the time to fully review this proposed comprehensive reform of EU data protection rules found at the European Commission website.

Litigation Management, Network Security, Privacy, Risk Management

Third Circuit Agrees Standing is Lacking in Breach Case

The United States Court of Appeals for the Third Circuit, in Reilly v. Ceridian Corporation, 2011 U.S. App. LEXIS 24561, 3 (3d Cir., December 12, 2011), found that “allegations of an increased risk of identity theft resulting from a security breach” were insufficient to secure Article III standing.  In so doing, the court affirmed the dismissal of claims brought by former employees of a NJ law firm after the firm’s payroll processor was breached.

Recognizing that “a number of courts have had occasion to decide whether the ‘risk of future harm’ posed by data security breaches confers standing on persons whose information may have been accessed”, the Third Circuit sided with those courts finding that plaintiffs lack standing because the harm caused is too speculative.   Specifically, the court did not consider an intrusion that penetrated a firewall and potentially allowed access to employee payroll data sufficient to meet the Article III requirement of an “actual or imminent” injury.  No misuse was alleged so no harm was found.

As well, the Third Circuit rejected the notion that time and money expenditures to monitor financial information conferred plaintiffs with standing.  Id. at 5 (“That a plaintiff has willingly incurred costs to protect against an alleged increased risk of identity theft is not enough to demonstrate a ‘concrete and particularized’ or ‘actual or imminent’ injury.”).  See also In re Michaels Stores PIN Pad Litigation, Slip Op. at 14 (N.D. Ill November 23, 2011) (reasoning that “individuals cannot create standing by voluntarily incurring costs in response to a defendant’s act.  Accordingly, Plaintiffs cannot rely on the increased risk of identity theft or the costs of credit monitoring services to satisfy the ICFA’s injury requirement.”).

The Third Circuit’s decision stands in sharp contrast to those decisions that stretched hard to find a cognizable harm sufficient to trigger constitutional standing as well as a recent ruling from the First Circuit reversing a dismissal because costs associated with credit card reissuance fees and ID theft insurance were deemed sufficient to constitute an injury.

There is now a growing body of law that has sprung from public data breaches that can be used by either side of the class action table.  The key metric will be how such decisions can be tooled by plaintiff’s counsel to defer dismissal.   Given the potential use of cy pres settlements, defense counsel need to cut off the discovery beast before it grows out of control and gives rise to such settlement discussions.  All plaintiff’s counsel needs to do is hope for a sympathetic judge before the wheel is spun.

Litigation Management, Privacy, Risk Management, Social Media

Mexico City Redux: Conference of Data Protection and Privacy Commissioners

On November 2 – 3, 2011, about 600 persons from around the world attended the 33rd International Conference of Data Protection and Privacy Commissioners.   For those unable to make the trek to Mexico City, what follows is selected insight gained from several folks who attended and were kind enough to report back what was discussed in Mexico.

The event opened with an exposition of the “big data” concerns driving many large privacy programs.   Ken Cukier of The Economist used the example of how the Sumo wrestling scandal was uncovered using big data analytics, i.e., a complete analysis of 10 years’ worth of Sumo contests, to showcase the fast, ubiquitous, and distributed nature of big data.   A common big data thread turned on the data collection activities of Facebook and Google – with an obvious concern regarding their future usage of collected data.  It was pointed out that a browser configuration is so customized now that it can act as a fingerprint indentifying its owner — leading to even more big data concerns.

Two other covered substantive topics were, not surprisingly, social media and mobile technologies.  Tied to social media was the purported “right to be forgotten.”  Building on prior conferences, it appears as if the commissioners in attendance believed future regulations will eventually create such a right in the EU.  The question of enforcement was not really deemed much of a concern – which is curious given it would be wishful thinking to think anyone can actually completely scrub the Internet of one’s personal data.   Moreover, do we really even want bad information regarding a professional such as a doctor or lawyer ever completely wiped clean?

As for mobile discussions, one session focused exclusively on the ramifications of having over five billion mobile users worldwide.  In ten years time, it was estimated there would be 20 billion SIM cards in use connecting multiple devices to each other.  In effect, chips will be everywhere processing and collecting data — leading to ever-increasing privacy challenges. 

Another area of discussion was the “interoperability” of privacy laws around the world.  The lofty notion of harmonization was abandoned in lieu of the more workable interoperability concept.  This new perspective would entail better cooperation between the various commissioners with perhaps an executive committee to assist in such coordination efforts.  The committee would deal with global issues that would require better cooperation, e.g., regulatory efforts involving multi-national corporations potentially impacting the privacy rights of persons in  many countries.

An interesting sidebar on interoperability was the ability to use of common regulations instead of directives.  Such a change in course would take much longer to implement given the need to, for example, go to a Parliament to pass such  regulations.  It was assumed this path would take 3 – 5 years to implement.  On the other hand, it would allow for much more in the way of teeth to an executive committee’s agenda.   

There was also an interesting debate between the commissioners regarding their perceived roles.  It was universally acknowledged that they are overwhelmed by the explosive privacy issues impacting their respective offices.  What was not universally acknowledges was how they should prioritize their time in meeting this challenge.  One school of thought (spearheaded by Chris Graham, the UK Information Commissioner) was that commissioners and their offices should be counselors assisting companies reach relevant privacy standards — a definitely carrot-centric approach.  The combating school of thought (voiced strongly by Jacob Kohnstamm, Head of the Article 29 Working Group and Chairman of the Dutch Data Protection Authority) was that only enforcement sticks should be used.  Mr. Kohnstamm said that companies have had enough time to be compliant and it is now time to enforce existing laws.  He also apparently stated that even if he wanted to act as a counselor he does not have sufficient advisory personnel on staff to act in that role.  Interestingly, this divide may also be attributable to a common law vs. civil law axis.  Given that Mr. Kohnstamm is up for election as head of the Article 29 Working Group, his election may end up being a referendum on this debate.

There was also interesting insight gained regarding the difference in styles between two newly installed commissioners; the newfound influence of Asia at the conference; the focus — for the first time — on privacy violations involving state actors; and a belief that the closed session resolutions may formalize the working relationships between the various commissioners and their respective offices.  

There is no doubt that the global privacy landscape is expanding at a rapid rate and that this conference will only grow over time – next year it will be at a resort in Uruguay.  Simon Davies, Director of Privacy International, even spoke about how countries such as Pakistan and Afghanistan are now starting a privacy dialogue.   The Dragon also took a privacy bow when Zhou Hanhua of the Chinese Academy of Social Sciences in Beijing gave a keynote address that discussed the new revisions to China’s penal code regarding privacy infractions as well as its revisions to Identification and Telecommunications laws to better address privacy concerns.   And, it was even mentioned Korea will host the conference in a few years. 

In other words, there can be no denying privacy is and will forever be a global issue.  In fact, that truism may very well be the reason this year’s Conference of Data Protection and Privacy Commissioners was titled “PRIVACY: The Global Age.”

Litigation Management, Network Security, Privacy, Risk Management

First Circuit Rules Hannaford Damages Include ID Theft Insurance and Card Reissuance Fees

On October 20, 2011, the United States Court of Appeals for the First Circuit issued an opinion reversing a Maine District Court’s dismissal of negligence and implied contract claims against grocer Hannaford Brothers.  The underlying data breach publicly announced on March 17, 2008 by Hannaford led to a consolidated class action that was ultimately rejected in its entirety by the Maine District Court.   After receiving guidance from the Maine Supreme Court regarding whether time and effort alone could represent a cognizable injury — it did not — the District Court ultimately ruled that even though claims for implied contract and negligence could be alleged by the plaintiffs, because the associated damages were not cognizable in law, the action had to be dismissed. 

In reversing, the First Circuit recognized that “[t]here is not a great deal of Maine law on the subject [of damages recoverable under § 919 of the Restatement (Second) of Torts].”  Accordingly, it reviewed a good deal of caselaw outside of Maine before applying § 919’s rule that “[o]ne whose legally protected interests have been endangered by the tortious conduct of another is entitled to recover for expenditures reasonably made or harm suffered in a reasonable effort to avert the harm threatened” to the specifics of this case.   Several cited cases found such mitigation damages valid even if they exceed the potential savings and are purely financial in nature. 

Recognizing the Hannaford breach involved a large-scale criminal operation that already led to over 1,800 identified fraudulent charges and many banks issuing new cards, the First Circuit ruled that mitigation damages in the form of ID theft insurance and credit card reissuance fees were financial losses recoverable under the negligence and implied contract claims so long as they are considered reasonable mitigation damages.   There was no remand for further factual findings on the issue.  The First Circuit simply made a determination that such damages were both foreseeable and reasonable and reversed on that basis.  Now that the consolidated complaint lives another day, the District Court may certify a class but if it does it remains to be seen how far the lower court will go in sizing the class and allowing for such mitigation damages.

Litigation Management, Privacy, Risk Management

ZIP Code Litigation Update

Earlier this year, the California Supreme Court ruled on the outer reach of a state statute meant to protect consumers during credit card transactions – the Song-Beverly Credit Card Act of 1971.  See Pineda v. Williams-Sonoma Stores, Inc., 51 Cal. 4th 524 (2011).  Specifically, Song-Beverly precludes retailers from requesting and recording a customer’s “personal identification information” during a credit card transaction and the Pineda court reasoned that such information now includes ZIP code information.  The decision was largely driven by the fact current marketing firms can use a ZIP code to tap into vast stores of personal data about a consumer.  Although the law may have only applied to retail stores in California, the decision immediately gave rise to an avalanche of class action suits given class action counsels’ new-found access to statutory damages.

In fact, given this new extension of the law, California legislators quickly amended Song-Beverly to exclude from its reach retail motor fuel sales and state law obligations.  This proposed law passed both the Senate and Assembly, was presented to the Governor on September 22, 2011 and will likely soon be signed into law.   What this proposed law does not do is expressly reverse Pineda or turn the tide against class actions brought against retailers.

It appears, however, courts on their own have found ways to curtail further extensions of Song-Beverly.  In an August 2011 Order, a California trial court sustained an online service provider’s demurrer to a class action complaint under Song-Beverly.  The action involved the purchase of an online advertisement.  The Order simply states that the law “on its face does not apply to online transactions,” and “the applicable case law, legislative intent and public policy indicate that such transactions are not, and should not be, encompassed” by Song-Beverly.

Other jurisdictions have been reluctant to create Pineda-like precedent.  In an unpublished opinion filed on September 26, 2011, a New Jersey District Court Judge decided that New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA) – which provides for a civil penalty of not less than $100 per violation – was not triggered when plaintiff provided her ZIP code during a retail credit card transaction.  The statute requires that the provisions of a specific consumer contract violate a state or federal law.  In dismissing the Complaint, the District Judge found that a credit card transaction did not implicate a specific consumer contract given the card number and ZIP code at issue were merely a series of numbers and not part of a specific consumer contract.  Given that New Jersey’s version of Song-Beverly (Restrictions on Information Required to Complete Credit Card Transactions, N.J.S.A. § 56:11-17) does not provide for a private right of action, plaintiff did not claim standing under that law.  With no small sense of irony, the case was dismissed against the same defendant as in Pineda.

A bench opinion recently entered by a New Jersey state judge came to the exact opposite conclusion.  In that ruling from the bench, the court found that a violation of N.J.S.A. § 56:11-17 was a sufficient predicate for a violation of the Truth-in-Consumer Contract, Warranty and Notice Act – which, in turn, allowed access to the statutory damages so eagerly sought by class action plaintiffs.  Given that it was only a bench opinion, the decision has no precedential weight.  In other words, it’s a decision that now means nothing to other retailers in New Jersey.  On the other hand, it only takes a chip here and there to sometimes break a levy – or the willing hand of an appellate court.  Stay tuned.

Update:  October 1, 2011
After reading a transcript of the oral argument and opinion, it appears the state court judge ultimately gave too much deference to NJ’s motion to dismiss standard.   Although the court concluded by saying he was “making no comment about the merits of the case”, he ultimately found that a common law privacy claim exists when a retailer obtains a customer’s ZIP code during a credit card transaction.  Moreover, he reasoned that a claim under TCCWNA could also exist given ZIP code information was was part of the writings required to complete the consumer transaction.  Accordingly, there was enough of a consumer contract to trigger the statute.

Update:  January 6, 2012
Although it ultimately dismisses an action against Michael’s Stores, Inc. given there is no cognizable common law injury and the applicable law does not provide for statutory damages, a Massachusetts federal court  rules that ZIP code information is “personal identification information”.