"There is no way to value and recompense the time and effort that consumers spent in reconstituting their bill-paying arrangements or talking to bank representatives to explain what charges were fraudulent. Those are the ordinary frustrations and inconveniences that everyone confronts in daily life with or without fraud or negligence.
The class-action-lawsuit-wannabe stems from last year's data breach at the grocery chain, which exposed 4.2 million credit and debit cards and led to 1,800 reported cases of fraud. Similar to rulings from cases fellow data-breach retail victim TJX, Hornby said he couldn't allow almost any of the defendants to continue with the case because the consumers hadn't suffered out-of-pocket financial losses.
In an ironic sense, this all stems from the card brands' zero liability programs. Those programs guarantee that consumers will have all fraud losses wiped clean. (The one defendant who can continue is a consumer whose fraud loss costs—for reasons unknown—were not covered by her bank.) It's ironic because the programs to created to make consumers feel safer about their payment security. Today, that program is preventing consumers from successfully suing retailers that mishandle their data, which in turn makes it more difficult for retailers to justify spending more than the minimum on data security. Oh, what a tangled Web we weave when we batch download to receive. (Sorry.)
In his decision (full text copy available), Hornby rejected all but one of the claims brought by 21 plaintiffs against the Maine-based operator of more than 200 stores in New England, New York and Florida.
Hornby seemed to empathize with consumers who are increasingly anxious about criminals getting hold of their private financial data. "Recurrent reports about breaches of electronic data systems—of governmental agencies, the nation's utility grid, merchants or other institutions—have generated increased apprehension, as consumers learn that the convenient card-based alternatives to cash turn out to have their own risks," Hornby wrote. "This is not the first lawsuit over who bears the risk of electronic data theft, and it certainly will not be the last."
However, the judge refused to offer an opinion as to whether the Maine Legislature or Congress needs to pass laws providing for increased consumer protection. "Such a decision involves complex arguments regarding the adequacy of current consumer protection, efficient risk allocation, the economics of doing business, and the efficacy of lawsuits as a way to resolve such issues," Hornby wrote in his 39-page decision. "Nor do I determine whether the Maine Law Court should develop Maine common law to address these issues differently. I merely conclude that under current Maine law, consumers whose payment data are stolen can recover against the merchant only if the merchant's negligence caused a direct loss to the consumer's account."
The plaintiffs argued they were owed money beyond the funds lost when Hannaford's payment system was breached between Dec. 7, 2007 and March 10, 2008. Hackers stole private debit card and credit card information, "including debit card and credit card numbers, expiration dates, security codes, PIN numbers and other information," and used the data to make about fraudulent charges on victims' cards, according to the lawsuit. The plaintiffs sought money from Hannaford as compensation for emotional distress, lost rewards points, time spent dealing with the situation and other hassles.
But Hornby said there was no legal basis for those requests. "Maine law requires that there be a way to attach a monetary value to a claimed loss. These fail that requirement. The same is true for a consumer's temporary lack of access to funds or credit, the annoyance of a canceled hotel reservation, and the embarrassment or annoyance of obtaining a family loan."The judge acknowledged there will be people, not only the plaintiffs, who believe he needed to be more pro-active and break new legal ground by forcing the retailer to add to the compensated customers' compensation. "For those wanting a definitive answer to this question of who should bear the risk of data theft in electronic payment systems, my ruling will be unsatisfactory," the judge wrote. "In this case, the answer depends wholly on state law, and the state law is still undeveloped. My role as a federal judge is simply to apply state law, not extend it, retract it, or modify it through broad strokes so as to accommodate the complex financial arrangements and risks that the parties portray."
However, he essentially said it makes no sense to seek compensation for losses that have been reimbursed. "My answer to the liability question between customer and grocer is this: Under Maine law as I understand it, when a merchant is negligent in handling a customer's electronic payment data and that negligence causes an unreimbursed fraudulent charge or debit against a customer's account, the merchant is liable for that loss," Hornby wrote, noting that those cases might also come under the jurisdiction of Maine's Unfair Trade Practices Act.
But if the retailer is not negligent "or if the negligence does not produce that completed direct financial loss and instead causes only collateral consequences—for example, the customer's fear that a fraudulent transaction might happen in the future, the consumer's expenditure of time and effort to protect the account, lost opportunities to earn reward points, or incidental expenses that the customer suffers in restoring the integrity of the previous account relationships—then the merchant is not liable."
The plaintiffs had also asked the judge to find Hannaford liable for waiting more than three weeks before disclosing the breach. Again, the judge rejected their request. Although he acknowledged that Maine's Notice of Risk to Personal Data Act says merchants that become aware of consumer data theft must tell the victims "as expediently as possible and without unreasonable delay," he noted there are qualifications. The timeframe for public notification must be "consistent with the legitimate needs of law enforcement . . . or with measures necessary to determine the scope of the security breach and restore the reasonable integrity, security and confidentiality of the data in the system." Hornby said the plaintiffs did not claim Hannaford violated that law and he pointed out the statute "does not recognize any private recovery for its breach."
Refusing, again, to be pushed into making new law from the bench, Hornby wrote, "Although the statute does not 'affect or prevent' other remedies that may be available under state or federal law, its detailed standards certainly give me reason to be wary of creating any new state standards where the Maine Law Court has not already clearly provided a remedy."
Only one plaintiff in the Hannford case was allowed to press on with a lawsuit. The allegations of that person, Pamela LaMotte, were not rejected by Hornby because the Colchester, Vt. Woman "asserts that there are fraudulent charges on her account that, to date, her card-issuing bank has refused to remove, and that she has had to pay them," wrote the judge.
He pointed out that Hannaford argued he should not consider these charges to be a "cognizable injury" because, "under typical credit or debit card agreements, the issuing bank agrees to remove fraudulent charges." Hornby sheds no light on why LaMotte's bank, unlike all the other plaintiffs' banks, hasn't reimbursed her.
The judge said LaMotte may have a claim for recovery against her bank but, since she remains uncompensated, he could not dismiss her action against Hannaford. "If Hannaford's negligence has caused fraudulent postings to Ms. LaMotte's account that have not been corrected, her ability, if any, to sue her bank under her credit or debit card contract does not eliminate Hannaford's potential liability to her. I see no Maine law that holds otherwise."