Dieffenbach v. Barnes & Noble, Inc.

• Decision Date: 11 April 2018
• Docket Number: No. 17-2408,17-2408
• Citation: 887 F.3d 826
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: Heather DIEFFENBACH and Susan Winstead, Plaintiffs-Appellants, v. BARNES & NOBLE, INC., Defendant-Appellee.

887 F.3d 826

Heather DIEFFENBACH and Susan Winstead, Plaintiffs-Appellants,

v.BARNES & NOBLE, INC., Defendant-Appellee.

No. 17-2408

United States Court of Appeals, Seventh Circuit.

Argued December 6, 2017

Decided April 11, 2018

Rehearing and Rehearing En Banc Denied May 10, 2018^*

Ben Barnow, Attorney, Erich Schork, Attorney, Barnow & Associates, P.C., Chicago, IL, Joseph Siprut, Attorney, Siprut PC, Chicago, IL, for Plaintiffs-Appellants.

Peter V. Baugher, Attorney, Baugher Dispute Resolution LLC, Chicago, IL, Kenneth L. Chernof, Attorney, Allyson Himelfarb, Attorney, Arnold & Porter Kaye Scholer LLP, Washington, DC, for Defendant-Appellee.

Before Wood, Chief Judge, and Easterbrook and Hamilton, Circuit Judges.

Easterbrook, Circuit Judge.

In 2012 Barnes & Noble discovered that scoundrels had compromised some of the machines, called PIN pads, that it used to verify payment information. They acquired details such as customers’ names, card numbers and expiration dates, and PINs. Some customers temporarily lost the use of their funds while waiting for banks to reverse unauthorized charges to their accounts. 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 damages 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 credit-monitoring 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, 112 S.Ct. 2130, 119 L.Ed.2d 351 (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, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980) ; Gasperini v. Center for Humanities, Inc ., 518 U.S. 415, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996) ; Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co. , 559 U.S. 393, 130 S.Ct. 1431, 176 L.Ed.2d 311 (2010). The fact that the federal rules 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 matter 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, after all, as is their language. But this does not matter, 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, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011). An "identifiable trifle of economic injury" suffices. Id . at 330 n.15, 120 Cal.Rptr.3d 741, 246 P.3d 877 (internal quotation marks and citation omitted). 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, 126 S.Ct. 2405, 165 L.Ed.2d 345 (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...