In a precedential ruling, the Third Circuit reinstated a class action lawsuit filed by a former employee who was required to provide sensitive personal and financial information to her employer which was then released on the dark web following a phishing attack, despite the employer’s statement that it would take appropriate measures to protect the information. In Clemens v. ExecuPharm Inc., No. 21-1506 (3d Cir. Sept. 2, 2022), the Third Circuit:
- overturned the District Court’s dismissal of the action for which the District Court found that Plaintiff failed to allege that she experienced actual identity theft or fraud
- rejected the contention that a risk of identity theft or fraud cannot qualify as sufficiently “imminent” to establish standing to bring a lawsuit
Plaintiff, a former employee of Defendant, was required as a condition of her employment to provide sensitive personal and financial information, such as her social security number, bank and financial account numbers, tax information, her passport, and information about her husband and child. Plaintiff’s employment agreement states that Defendant would “take appropriate measures to protect the confidentiality and security” of this information.
After Plaintiff left Defendant’s employment, a hacking group used a phishing attack in March 2020 to install malware on Defendant’s servers, stealing sensitive information about current and former employees including Plaintiff. Either because Defendant refused to pay or for other reasons, the company’s data – including 123,000 files and 162 gigabytes of data – was released on the dark web, as confirmed by screenshots taken by an intelligence firm.
Plaintiff promptly took actions, including: (1) enrolling in Defendant’s complimentary one-year credit monitoring services, (2) transferring her account to a new bank, and (3) placing fraud alerts on her credit reports.
Plaintiff filed a class action lawsuit asserting claims for breach of contract, breach of implied contract, negligence, negligence per se, breach of confidence, and breach of fiduciary duty. Plaintiff alleged that she sustained injuries as a result of the data breach – primarily the risk of identity theft and fraud – in addition to the investment of time and money to mitigate potential harm.
The District Court dismissed the case, stating that Plaintiff had not yet experienced actual identity theft or fraud, and thus she had no standing to bring this action.
First, the Third Circuit analyzed that to sustain an injury-in-fact in order to have standing to bring a lawsuit, the injury must be “actual or imminent” which indicates that Plaintiff need not wait until she has actually sustained the feared harm in order to seek judicial redress. Instead, Plaintiff can file suit when the risk of harm becomes imminent: “meaning it poses a substantial risk of harm – versus hypothetical in the data breach context.” Id. at 10. The Third Circuit discussed that there are many factors to determine whether a risk is “imminent,” including whether:
- the data breach was intentional
- the data was misused
- the nature of the information accessed through the data breach could subject a plaintiff to a risk of identity theft
Second, the Third Circuit cited to U.S. Supreme Court cases which ruled that an intangible injury – which is an injury that does not represent a purely physical or monetary harm to a plaintiff – may be a “concrete” injury.
Third, the Third Circuit analyzed the employment agreement in which Defendant expressly contracted to “take appropriate measures to protect the confidentiality and security” of this information.
Thus, the Third Circuit is permitting the class action to proceed in the District Court.