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Date: 04-11-2018

Case Style:

Heather Dieffenbach and Susan Winstead v. Barnes & Noble, Inc.

Northern District of Illinois Courthouse - Chicago, Illinois

Case Number: 17-2408

Judge: Easterbrook

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney: William Anthony Baird, David S. Markun and E. Kirk Wood

Defendant's Attorney: Kristen Elizabeth Hudson and Peter Vincent Baugher

Description: funds while waiting for
banks to reverse unauthorized charges to their accounts.
2 No. 17-2408
Some spent money on credit-monitoring services to protect
their financial interests. Some lost the value of their time devoted
to acquiring new account numbers and notifying
businesses of these changes. Many people use credit or debit
cards to pay bills automatically; every time the account
number changes, these people must devote some of their
time and mental energy to notifying merchants that the old
numbers are invalid and new ones must be used. In this suit
under state law, plaintiffs seek to collect damages not from
the data thieves but from Barnes & Noble. Jurisdiction rests
on the Class Action Fairness Act, 28 U.S.C. §1332(d), because
the proposed class contains at least 100 members, the
amount in controversy exceeds $5 million, and minimal diversity
of citizenship exists.
The district court initially held that the representative
plaintiffs had suffered no loss at all—that they did not even
have standing to sue. 2013 U.S. Dist. LEXIS 125730 (N.D. Ill.
Sept. 3, 2013). After this court held in Remijas v. Neiman Marcus
Group, LLC, 794 F.3d 688 (7th Cir. 2015), and Lewert v. P.F.
Chang’s China Bistro, Inc., 819 F.3d 963 (7th Cir. 2016), that
consumers who experience a theft of their data indeed have
standing, the district court (acting through a different judge)
concluded that the complaint alleges injury. 2016 U.S. Dist.
LEXIS 137078 at *8–11 (N.D. Ill. Oct. 3, 2016). But the judge
nonetheless dismissed the complaint, ruling that it does not
adequately plead damages. Id. at *13–25. See also 2017 U.S.
Dist. LEXIS 97161 (N.D. Ill. June 13, 2017) (dismissing an
amended complaint).
This seems to us a new label for an old error. To say that
the plaintiffs have standing is to say that they have alleged
injury in fact, and if they have suffered an injury then damNo.
17-2408 3
ages are available (if Barnes & Noble violated the statutes on
which the claims rest). The plaintiffs have standing because
the data theft may have led them to pay money for creditmonitoring
services, because unauthorized withdrawals
from their accounts cause a loss (the time value of money)
even when banks later restore the principal, and because the
value of one’s own time needed to set things straight is a loss
from an opportunity-cost perspective. These injuries can justify
money damages, just as they support standing.
Pleading is governed by Fed. R. Civ. P. 8 and 9. Rule
8(a)(3) requires the plaintiff to identify the remedy sought,
but it does not require detail about the nature of the plaintiff’s
injury. See Lujan v. Defenders of Wildlife, 504 U.S. 555,
561 (1992). What’s more, Rule 54(c) provides that the prevailing
party receives the relief to which it is entitled, whether or
not the pleadings have mentioned that relief. Rule 9(g), by
contrast, does require details, but only with respect to “special
damages.” Barnes & Noble does not contend, and the
district judge did not find, that any loss plaintiffs have identified
is treated as “special damages.” As far as the federal
rules are concerned, then, all this complaint needed to do
was allege generally that plaintiffs have been injured.
The district court did not apply these rules, instead demanding
that the complaint contain all specifics that would
have been required had this suit been in state court. 2016
U.S. Dist. LEXIS 137078 at *13–19, 22–25. But in federal court
it is the federal rules that determine what must be in a complaint.
See, e.g., Walker v. Armco Steel Corp., 446 U.S. 740
(1980); Gasperini v. Center for Humanities, Inc., 518 U.S. 415
(1996); Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance
Co., 559 U.S. 393 (2010). The fact that the federal rules
4 No. 17-2408
do not require plaintiffs to identify items of loss (except for
special damages) means that this complaint cannot be faulted
as insufficient.
Still, a district court could grant judgment on the pleadings,
see Fed. R. Civ. P. 12(c), if none of the plaintiffs’ injuries
is compensable, as a maoer of law, under the statutes on
which they rely. We therefore turn to state law.
Heather Dieffenbach dealt with Barnes & Noble in California
and contends on appeal that she suffered four kinds
of injury: (1) her bank took three days to restore funds
someone else had used to make a fraudulent purchase; (2)
she had to spend time sorting things out with the police and
her bank; (3) she could not make purchases using her compromised
account for three days; and (4) she did not receive
the benefit of her bargain with Barnes & Noble. The fourth of
these is not a loss; it is the failure to obtain a gain from the
transaction. (Dieffenbach does not contend that any of the
items she purchased was defective or that Barnes & Noble
promised any particular level of security, for which she paid.
See Remijas, 794 F.3d at 694–95.) But the first three are losses,
at least in economic terms.
Dieffenbach invokes two statutes: California’s Customer
Records Act and its Unfair Competition Law. The Records
Act provides that a “customer injured by a violation of [this
Act] may … recover damages.” Cal. Civ. Code §1798.84. The
statute does not define injury, nor does any state decision we
could find. The district judge took this absence of a definition
as equivalent to conditioning recovery on satisfaction of
the Unfair Competition Law, which provides that “lost money
or property” supports recovery. Cal. Bus. & Prof. Code
§17204. That’s a problematic move; the statutes are distinct,
No. 17-2408 5
after all, as is their language. But this does not maoer, because
the first three losses that Dieffenbach identifies fit
within the phrase “lost money or property”.
California’s judiciary understands “lost money or property”
to mean an economic injury and tells us that “[t]here
are innumerable ways in which economic injury … may be
shown.” Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 323
(2011). An “identifiable trifle of economic injury” suffices. Id.
at 330 n.15 (internal quotation marks and citation omioed).
We know from Marentes v. Impac Funding Corp., 2014 WL
2157539 (Cal. App. May 23, 2014), that the time value of
money meets the statutory definition. Although the loss of
use in Marentes was longer (six months there, three days for
Dieffenbach) the principle that the time value of money is
“money or property” controls. Cf. Burlington Northern & Santa
Fe Ry. v. White, 548 U.S. 53 (2006), which holds that a
worker suffers a compensable injury even though the employer
awards back pay to make up for salary lost during a
37-day suspension. Losing the use of money for three days
may be a trifle to some people (though to others it may be a
calamity), but a trifling loss suffices under California law.
And state courts have said that significant time and paperwork
costs incurred to rectify violations also can qualify as
economic losses. Compare Sarun v. Dignity Health, 232 Cal.
App. 4th 1159, 1169 (2014) (“The tangible burden of [providing
tax return information and other personal financial data]”
satisfies the Law), with Lueras v. BAC Home Loans Servicing,
LP, 221 Cal. App. 4th 49, 82 (2013) (finding time spent
“preparing and assembling materials” for a loan modification
application de minimis and insufficient).
6 No. 17-2408
Now for Illinois. Susan Winstead, the second representative
plaintiff, alleges that (1) her bank contacted her about a
potentially fraudulent charge on her credit card statement
and deactivated her card for several days; and (2) the security
breach at Barnes & Noble “was a decisive factor” when
she renewed a credit-monitoring service for $16.99 per
month. Her claim rests on the Illinois Consumer Fraud and
Deceptive Business Practices Act, 815 ILCS 505/2, and the
proposed class relies on materially identical laws in other
states. A person “who suffers actual damage as a result of a
violation of this Act” may recover. 815 ILCS 505/10a(a). A
monthly $17 out of pocket is a form of “actual damage”. It is
real and measurable; Illinois does not require more. See
Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d
100, 195–99 (2005). And, if the plaintiff has suffered an economic
loss, noneconomic injuries are compensable. See, e.g.,
Morris v. Harvey Cycle & Camper, Inc., 392 Ill. App. 3d 399,
402–03 (2009).
An Illinois appellate court has held that a person who
purchases credit-monitoring services after a merchant discloses
personal information has not suffered actual damages.
Cooney v. Chicago Public Schools, 407 Ill. App. 3d 358, 365–66
(2010). We think it unlikely that the Supreme Court of Illinois
would agree with the “actual damages” portion of this
decision, given the breadth of the statutory language. Money
out of pocket is a standard understanding of actual damages
in contract law, antitrust law (Reiter v. Sonotone Corp., 442
U.S. 330 (1979)), the law of fraud, and elsewhere. To get
damages plaintiffs must show that a culpable data breach
caused the monthly payments, but the complaint cannot be
dismissed before giving the class an opportunity to do so.
No. 17-2408 7
Everything we have said about California and Illinois law
concerns injury. We have not considered whether Barnes &
Noble violated any of these three state laws by failing to
prevent villains from stealing plaintiffs’ names and account
data. Barnes & Noble was itself a victim. Its reputation took
a hit, it had to replace the compromised equipment plus other
terminals that had been shown to be vulnerable, and it
lost business. None of the state laws expressly makes merchants
liable for failure to crime-proof their point-of-sale systems.
Plaintiffs may have a difficult task showing an entitlement
to collect damages from a fellow victim of the data
thieves. It is also far from clear that this suit should be certified
as a class action; both the state laws and the potential
damages are disparate. These and other questions need consideration
on remand. That the case has been pending for 5½
years without a decision by the district court whether the
proposed class can be certified is problematic under Fed. R.
Civ. P. 23(c)(1)(A), which requires the decision to be made
“[a]t an early practicable time after a person sues … as a
class representative”. All we hold today is that the complaint
cannot be dismissed on the ground that the plaintiffs do not
adequately allege compensable damages.

Outcome: The judgment is vacated, and the case is remanded for
proceedings consistent with this opinion.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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