On November 21, 2018, in Dittman v. UPMC d/b/a The University of Pittsburgh Medical Center, the Supreme Court of Pennsylvania held that an employer has a legal duty to exercise reasonable care to safeguard its employees’ sensitive personal information stored on an internet-accessible computer. Dittman is notable because it is the first time a state’s highest court has broadly held that a company owes a duty to its employees to protect their personal data that it collects and stores. Also, by rejecting the economic loss doctrine, the court opened the door to the potential recovery of pecuniary damages in data breach cases alleging a negligence theory. If the holding of Dittman is adopted by courts in other states, employers could face increased risk of financial liability following a data breach that compromises personal information of employees. Continue Reading Pennsylvania’s Highest Court Rules that Employers Have a Duty to Guard Their Employees’ Personal Data
On December 13, 2018, the District Court for the Northern District of California dismissed a putative securities class action brought against PayPal Holdings, its subsidiary TIO Networks Corp., and several executives of both companies for a security breach that resulted in the potential compromise of personally identifiable information for 1.6 million customers. In Sgarlata v. PayPal Holdings Inc., No. 17-cv-06956-EMC, 2018 WL 6592771 (N.D. Cal. Dec. 13, 2018) (“Sgarlata”), the court dismissed the complaint for failure to plead scienter because plaintiffs failed to adequately plead that defendants knew not only of an actual security breach, but also the magnitude of the breach and the type of data accessed. Continue Reading California District Court Dismisses Securities Class Action After Plaintiffs Failed to Plead that PayPal Knew Magnitude of Security Breach
On September 26, 2018, the attorney generals of all 50 states and the District of Columbia (“State AGs”) announced a record-breaking $148 million settlement with Uber Technologies Inc. (“Uber”) over Uber’s alleged failure to disclose a massive data breach in 2016. The settlement holds significant implications for U.S. companies concerned about their cybersecurity measures in the face of increasing incidents of data breaches, as well as intensifying scrutiny by authorities. Continue Reading State AGs Announce Settlement With Uber Over Data Breach
On September 27, 2018, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) filed parallel actions in federal court against an internet dealer that sold “contracts for difference” (CFD) based on securities and commodities margined with bitcoin. The actions, which were assisted by the Federal Bureau of Investigation and the Department of Justice, signal continued coordination among federal agencies to police market activity involving financial transactions in cryptocurrencies. Continue Reading The CFTC and SEC Bring Charges Against International Securities Dealer for Bitcoin-Funded Swaps Activity
On September 26, 2018, a federal court in the District of Massachusetts found that virtual currencies are a commodity under the Commodity Exchange Act, 7 U.S.C. § 1 et seq, (“CEA”). This marks the second time that a court has accepted the Commodity Futures Trading Commission’s (“CFTC”) position and upheld the agency’s authority to regulate unleveraged and unmargined spot transactions in virtual currency under the agency’s anti-fraud and manipulation enforcement authority. Most notably, however, the reasoning behind its decision potentially expands the scope of the CFTC’s oversight of the market. Continue Reading Second District Court Determines Virtual Currencies Are Commodities
The UK Information Commissioner’s Office (ICO) has provided Facebook with a Notice of Intent to issue a monetary penalty against the social media platform for its lack of transparency and failure to maintain the security of its users’ personal data in relation to the Cambridge Analytica scandal. The ICO’s fine is the maximum possible under the Data Protection Act 1998 (the UK implementing legislation for the former EU data protection regime under the Data Protection Directive). Facebook will have the opportunity to make representations to the ICO before the ICO’s decision is finalised.
In the first criminal charges brought in connection with the Equifax data breach, the United States Attorney for the Northern District of Georgia announced yesterday the indictment of Jun Ying, a former Chief Information Officer of a U.S. business division of Equifax, on charges of insider trading in violation of federal securities laws. At the same time, the SEC announced parallel civil charges against Ying. Both the indictment and the SEC complaint allege that Ying was not specifically informed that Equifax had been breached, but, as a result of his position, was made aware of enough confidential information to—according to his own contemporaneous text messages—“put 2 and 2 together” to infer that “[w]e may be the one breached.” After deducing this material information, Ying allegedly conducted internet research on the 2015 data breach of Experian, another major credit bureau, and its negative impact on Experian’s stock price. Immediately following his internet search, Ying allegedly exercised all of his vested stock options and sold those Equifax shares for a total of $950,000 in proceeds, avoiding more than $117,000 in losses that he would have incurred had he still been holding the shares at the time the data breach was publicly announced more than a week later. The SEC is seeking disgorgement of an amount equal to the losses Ying allegedly avoided, civil monetary penalties, an order barring Ying from ever serving as an officer or director of a public company, and an injunction enjoining Ying from further violating the federal securities laws. The indictment charges Ying with two counts of criminal securities fraud, which, if he is convicted, carry a maximum sentence of 45 years. Continue Reading DOJ And SEC Charge Former Equifax Executive With Insider Trading
A recent decision by an intermediate Illinois appellate court, Rosenbach v. Six Flags Entm’t Corp., suggests that state courts—which are not bound by federal Article III standing limitations in entertaining suits—will not necessarily provide a more plaintiff-friendly forum for data privacy suits than their federal counterparts.
Earlier this month, we wrote about the Second Circuit’s summary order in Vigil v. Take-Two Interactive Software, Inc. There, the court affirmed the dismissal of a class action lawsuit brought in the Southern District of New York under the Illinois Biometric Information Privacy Act (“BIPA”) for want of Article III standing because the plaintiffs had failed to allege an injury-in-fact, but remanded the case with instructions to amend the judgment and enter a dismissal without prejudice. The district court had ruled that the BIPA’s limitation of the private right of action to a “person aggrieved by a violation” meant that the plaintiffs’ failure to allege an injury-in-fact was also fatal to their claims as a matter of state law, meaning that the case should be dismissed with prejudice for failure to state a claim. The Second Circuit vacated that portion of the ruling on jurisdictional grounds, which left the door open for the plaintiffs to attempt to bring their claims in state court without any allegation of actual harm. Continue Reading Illinois Appellate Court Holds That Mere Technical Violations Of Data Privacy Statute Are Insufficient To State A Claim
In late November, the Second Circuit issued a summary order in Vigil v. Take-Two Interactive Software, Inc, which affirmed the dismissal of a class action lawsuit brought in the Southern District of New York under the Illinois Biometric Information Privacy Act (“BIPA”) for lack of standing. In doing so, the court followed established Second Circuit precedent and highlighted the continuing difficulties plaintiffs face in establishing standing for certain technical violations of data privacy statutes, when those violations are unaccompanied by allegations of a breach or likelihood of improper access. The case also serves as a reminder that as states pass statutes covering new types of technology and data, companies will need to remain vigilant in protecting a wider range of information than before. Continue Reading Second Circuit Issues Order Affirming Dismissal of Data Privacy Class Action Suit
On October 16, 2017, the U.S. Supreme Court agreed to review a highly publicized Second Circuit decision, which held that the federal government cannot use warrants issued under the Stored Communications Act to seize customer emails stored exclusively on foreign servers. Under the decision, Microsoft was permitted to refrain from producing emails stored on a Microsoft server in Ireland to the Justice Department. The Justice Department had sought a court order for the production of such emails in connection with a 2013 narcotics trafficking investigation. The Supreme Court’s opinion is expected by June 2018 and will have far-reaching implications for law enforcement’s ability to obtain electronic evidence stored outside of the U.S.
The Second Circuit’s decision in Microsoft Corp. v. United States can be accessed here.