Federal Judge In Hannaford Databreach Case To Decide Responsibility Issues

A federal judge in Maine is promising to issue a decision imminently about whether a databreach class action lawsuit against Hannaford will be allowed to proceed. The arguments before U.S. District Court Judge D. Brock Hornby in the Hannaford case are almost identical to those put in front of another federal judge in late 2007 overseeing the TJX databreach. Although the first federal judge ruled in favor of TJX, a different federal judge could very easily go in a very different direction.

In both cases, the judge was overseeing the case of a major retailer and a very large databreach, presumably facilitated to varying degrees by IT errors or oversights by the retailer. The arguments boil down to this. The attorneys representing consumers suing Hannaford are arguing that Hannaford knew—or should have known—that its payment security procedures were inadequate and yet it still allowed consumers to use their cards at the chain's stores.

"Hannaford was alerted to the Security Failure on February 27, 2008, but remained silent until March 17, 2008. Rather than lose sales, it allowed customers to continue making purchases by debit and credit card, knowing that its electronic payments system was not secure and that it was exposing these customers' accounts to fraud," wrote lawyers for consumer plaintiffs. "Defendant asks this Court to bless a state of affairs in which consumers entrust their confidential debit and credit card account access information to merchants to pay for purchases at their peril, with no recourse against the merchant for the consequences to them of even negligent mishandling of their confidential information. Such an extreme position finds no support in the law as it has developed to date. It should not become the law governing electronic commerce in the 21st Century."

The plaintiffs continued: "This misuse, and the measures taken to counter it, such as card cancellation, cause tangible and significant burdens to cardholders. The fact that card issuers may reimburse cardholders for fraudulent charges does not mean that merchants who solicit customers to entrust their confidential account access information to them in order to effect payments should be relieved from liability for the other real and tangible consequences of their failure to safeguard such information."

Hannaford's lawyers counter that none of the named consumer plaintiffs sustained any substantial harm, partly due to credit card zero liability programs. Therefore, they argue, there is no practical way for the court to make those consumers whole as they already were whole, from a financial perspective. The only damages alleged, Hannaford lawyers argued, were either theoretical or too small to merit court compensation."In the case at hand, where no personal data is alleged to have been at risk and Plaintiffs allege only that account data was exposed, precedent and policy dictate a fortiari that their claims should be dismissed. Even among those Plaintiffs who allege some sort of pecuniary harm, not all are alleging an out-of-pocket expense," the Hannaford lawyers wrote. "Some allege merely the loss of expected contractual benefits (for example, reward points) under their cardholder agreements with their issuing banks. Only a single Plaintiff alleges that she was held responsible for an unauthorized charge. The dismissal of this action should follow as a matter of simple logic. In cases in which personal data is stolen or accessed, courts regularly reject as a matter of law attempts to secure a remedy for the types of harms alleged in this case. In this case, Plaintiffs do not even allege — and cannot allege — that any of their personal data was stolen in conjunction with their account data. Because incidental damages for protecting oneself from the potential harms of identify theft are not recoverable, it should follow even more surely that the very same type of harm is not recoverable to protect oneself from theft of mere account data."

The Hannaford lawyers continued: "Even in nuisance law, where recovery for inconvenience is possible, it is a commonplace that slight or incidental harms are not recoverable. So in this case, alleging that an issuing bank's (or a Plaintiff's own) prophylactic measures resulted in loss of free time or inconvenience for the Plaintiffs does not suffice to state a claim of damage that will sustain a tort or contract claim. All Plaintiffs' core claim of recovery for mere time and inconvenience founders on the unremarkable proposition that a Hannaford customer whose card was cancelled and replaced has no claim for relief on that basis alone."

The standard the judge is dealing with is somewhat low. Hornby is not, at this point, being asked to make a decision on whether Hannaford deserves to be punished. It's merely to decide if a class-action action should be permitted to continue against the retail chain. From that perspective, the plaintiffs have a relatively low bar to clear.

But, in general, precedent seems to favor Hannaford here. The core objective of the typical criminal court is to punish businesses or individuals who engage in prohibited conduct. A civil court's goal, however, is to merely make the plaintiff whole. In other words, to put the consumer back to the place they would have been had the defendant never engaged in the actions that permitted the incident to happen. Sometimes, a civil court can engage in punitive actions—an extra fee because of bad actions designed to discourage others from doing the same thing—but that's almost always on on top of the compensation. But the plaintiffs here aren't alleging that significant monetary damages. Without substantial damages, it's hard for the court to see what the plaintiffs want.

Still, the judge could rule that it should be up to a jury to decide if the aggravation suffered by the plaintiffs is sufficient to warrant monetary compensation.