Katz v. Pershing, LLC

• Decision Date: 23 August 2011
• Docket Number: Civil Action No. 10–12227–RGS.
• Citation: 806 F.Supp.2d 452
• Parties: Brenda KATZ, on behalf of herself and all others similarly situated v. PERSHING, LLC.
• Court: U.S. District Court — District of Massachusetts

806 F.Supp.2d 452

Brenda KATZ, on behalf of herself and all others similarly situated

v.PERSHING, LLC.

Civil Action No. 10–12227–RGS.

United States District Court, D. Massachusetts.

Aug. 23, 2011.

Stephen J. Calvacca, Susan L. Moran, Law Offices of Calvacca Moran, West Falmouth, MA, for Brenda Katz.

Jason D. Gerstein, Margaret A. Dale, Pro Hac Vice, Stephen L. Ratner, Proskauer Rose LLP, New York, NY, L. Scott Harshbarger, Proskauer Rose, LLP, Boston, MA, for Pershing, LLC.

MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO DISMISS

STEARNS, District Judge.

BACKGROUND

Plaintiff Brenda Katz owns an account at National Planning Corporation (NPC), an “introducing firm” for which defendant Pershing, LLC (Pershing), provides brokerage clearing services executed on a proprietary software platform called NetExchange Pro. The platform allows brokerage firms and customers (currently over 5,000,000 in number) to access account information, stock quotes, and research tools over the Internet.¹ Katz alleges that up to 100,000 users (including key Pershing employees) have 24–hour electronic access to customers' non-public personal information (NPPI), including Social Security numbers, taxpayer identification numbers, and bank account numbers, without robust information technology security in place. Pl.'s Opp'n at 2. As a result, Katz alleges that customers' NPPI is susceptible of being downloaded or improperly stored without encryption, making it vulnerable to unauthorized access by third parties, including spyware. Katz claims that NPC paid fees to Pershing to protect customer data—fees that she believes were passed on to her and other putative class members.

On December 23, 2010, Katz filed this Complaint alleging violations of the Massachusetts Unfair and Deceptive Trade Practices Act, Mass. Gen. Laws ch. 93A; violations of other (unspecified) states' unfair trade practices statutes; breach of contract; breach of implied contract; negligent breach of contractual duties; unjust enrichment, and other prayers for equitable relief. Katz seeks certification of a class consisting of

all persons in the United States whose [NPPI] is or was maintained on an account with a broker, investment advisor, or directly with [Bank of New York], its affiliates or subsidiaries that utilizes or utilized Defendant's clearing or financial services and/or subscribes or subscribed to the use of the [NetExchange Pro], directly or indirectly, during the six years immediately prior to the filing of this action.

Compl. ¶ 49.²

On March 11, 2011, Pershing filed a motion to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The court granted the motion on Rule 12(b)(1) grounds before Katz filed an opposition.³ Katz filed a motion to reconsider on March 30, 2011. The motion was granted in part, and a hearing was held on June 3, 2011, on Pershing's reinstated motion to dismiss.

DISCUSSION

Subject Matter Jurisdiction

“When faced with motions to dismiss under both 12(b)(1) and 12(b)(6), a district court, absent good reason to do otherwise, should ordinarily decide the 12(b)(1) motion first.... It is not simply formalistic to decide the jurisdictional issue when the case would be dismissed in any event for failure to state a claim. Different consequences flow from dismissals under 12(b)(1) and 12(b)(6): for example, dismissal under the former, not being on the merits, is without res judicata effect.” Ne. Erectors Ass'n of the BTEA v. Sec'y of Labor, Occupational Safety & Health Admin., 62 F.3d 37, 39 (1st Cir.1995). A court is permitted to look beyond the pleadings to determine jurisdiction on a 12(b)(1) motion, hence the formality of converting the motion to one for summary judgment need not be observed. See Gonzalez v. United States, 284 F.3d 281, 288 (1st Cir.2002); Dynamic Image Techs., Inc. v. United States, 221 F.3d 34, 37–38 (1st Cir.2000).

“Unlike a dismissal for lack of constitutional standing, which should be granted under Rule 12(b)(1), a dismissal for lack of prudential or statutory standing is properly granted under Rule 12(b)(6).” Harold H. Huggins Realty, Inc. v. FNC, Inc., 634 F.3d 787, 795 n. 2 (5th Cir.2011). See also Maio v. Aetna, Inc., 221 F.3d 472, 482 n. 7 (3d Cir.2000) (“Generally speaking, motions to dismiss on the grounds of a failure to allege an ‘injury in fact’ implicate constitutional standing principles and thus are predicated on Rule 12(b)(1) rather than Rule 12(b)(6).”).

To survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a complaint must allege “a plausible entitlement to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 559, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “While a complaint attacked by a Rule 12(b)(6) motion does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle [ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do.” Id. at 555, 127 S.Ct. 1955 (internal citations omitted). See also Berner v. Delahanty, 129 F.3d 20, 25 (1st Cir.1997) (dismissal for failure to state a claim is appropriate if the pleadings fail to set forth “factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory”) (internal quotation marks omitted). “If the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal.” Tasker v. DHL Ret. Sav. Plan, 621 F.3d 34, 39 (1st Cir.2010) (internal citation and quotation marks omitted).

Pershing's Rule 12(b)(1) motion challenges Katz's standing to prosecute the Complaint, arguing that she “does not and cannot allege that any of her protected data has been lost, stolen, disclosed, or accessed by an unauthorized person; nor does she allege any facts concerning the [supposed fees] indirectly paid to Pershing.” Def.'s Mem. at 6. There are “three fundamental requisites of standing that every litigant invoking the jurisdiction of the federal courts must possess: (1) injury-in-fact—an invasion of a legally-protected interest that is both concrete and particularized, and actual or imminent; (2) causation; and (3) redressability.” Benjamin v. Aroostook Med. Ctr., Inc., 57 F.3d 101, 104 (1st Cir.1995); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). “Future injury must be imminent to qualify as injury-in-fact” to ensure that the “alleged injury is not too speculative.” Sea Shore Corp. v. Sullivan, 158 F.3d 51, 56 (1st Cir.1998).

In her Complaint, Katz does not allege that any of her NPPI has been misappropriated, nor does she allege any facts regarding the “fees” that she and other class nominees allegedly paid (indirectly) to Pershing. Instead, she complains of “Pershing's reckless, improper and/or unlawful failure to safeguard the [NPPI],” Compl. ¶ 2, and Pershing's “ongoing violation of the Massachusetts Privacy Standards and [Chapter] 93A.” Pl.'s Opp'n. at 6.

As Pershing points out, at least four federal courts have reviewed and dismissed data loss claims on Article III standing grounds.⁴ See Randolph v. ING Life Ins. & Annuity Co., 486 F.Supp.2d 1, 8 (D.D.C.2007) (increased risk of identity theft claims stemming from laptop burglary amounted to “mere speculation that at some unspecified point in the indefinite future [plaintiffs] will be the victims of identity theft”); Key v. DSW, Inc., 454 F.Supp.2d 684, 690 (S.D.Ohio 2006) (absent evidence of a third party intent to make unauthorized use of plaintiff's financial data or identity, plaintiff fails to allege an actual or imminent injury-in-fact); Bell v. Acxiom Corp., 2006 WL 2850042, at *2 (E.D.Ark. Oct. 3, 2006) (increased risk of identity theft insufficient to show that plaintiff suffered “concrete damages”); Giordano v. Wachovia Sec., LLC, 2006 WL 2177036, at *4 (D.N.J. July 31, 2006) (“Plaintiff's claims [of increased risk of identity theft], at best, are speculative and hypothetical future injuries.”). Even where courts have found that actual NPPI loss has occurred, a plaintiff's standing is not assured. See, e.g., Hammond v. Bank of New York Mellon Corp., 2010 WL 2643307, at *8 (S.D.N.Y. June 25, 2010) (finding no Article III standing despite a confirmed loss of NPPI data because the potential for future injury was “speculative” and “hypothetical”).

For her part, Katz attempts to distinguish her claims from the unsuccessful “increased risk” cases by arguing that she has standing under both her Chapter 93A and breach of contract claims because of Pershing's “misrepresentations and willful non-disclosure of material facts concerning the security features of [NetExchange Pro].” Pl.'s Opp'n at 5. Katz insists that she and the putative class have suffered “actual pecuniary damages as a result of being deprived of the benefit of the bargain in that the services delivered were of distinctively lesser value than the services as advertised and promised.” Pl.'s Opp'n at 1.

Chapter 93A prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Mass. Gen. Laws ch. 93A, § 2(a). Violation of a State statute or regulation may constitute an unfair practice under Chapter 93A. Under the Code of Massachusetts Regulations, an act or practice is a violation of Chapter 93A, § 2, if: “[i]t fails to comply with existing statutes, rules, regulations or laws, meant for the protection of the public's health, safety, or welfare....” 940 CMR § 3.16(3). See also Reddish v. Bowen, 66 Mass.App.Ct. 621, 627–629, 849 N.E.2d 901 (2006) (the improper construction of a swimming pool implicated Mass. Gen. Laws ch. 142A, § 17, under which a violation of a local or State “building law” is treated as a Chapter 93A unfair and deceptive act). Katz specifically points to Mass. Gen. Laws ch. 93H,...