Katz v. Pershing, LLC

• Decision Date: 28 February 2012
• Docket Number: No. 11–1983.,11–1983.
• Citation: 672 F.3d 64
• Parties: Brenda KATZ, Plaintiff, Appellant, v. PERSHING, LLC, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

672 F.3d 64

Brenda KATZ, Plaintiff, Appellant,

v.PERSHING, LLC, Defendant, Appellee.

No. 11–1983.

United States Court of Appeals, First Circuit.

Heard Jan. 10, 2012.Decided Feb. 28, 2012.

Stephen J. Calvacca, with whom Susan L. Moran and Law Offices of Calvacca Moran were on brief, for appellant.

Stephen L. Ratner, with whom Margaret A. Dale, Jason D. Gerstein, Scott Harshbarger, and Proskauer Rose LLP were on brief, for appellee.

Before SELYA, Circuit Judge, SOUTER,^* Associate Justice, and LIPEZ, Circuit Judge.SELYA, Circuit Judge.

Plaintiff-appellant Brenda Katz insists that defendant-appellee Pershing, LLC failed to protect sensitive nonpublic personal information as it was obligated to do under both contract and consumer protection laws. To vindicate this concern, she sued the defendant on her behalf and on behalf of others similarly situated. The district court dismissed her putative class action. Her appeal of that order requires us to examine both abecedarian principles of Article III standing and assorted provisions of state substantive law.

As a general matter, class action litigation has kept pace with rapid technological advances. But there are limits—constitutional, prudential, and doctrinal—to how far a class action plaintiff may extend the zone of liability. In this case, the plaintiff's reach exceeds her grasp. We conclude that, despite the dire forebodings expressed in her complaint, she not only has failed to state any contractual claim for relief but also lacks constitutional standing to assert a violation of any arguably applicable consumer protection law. Consequently, we affirm the district court's order of dismissal.

I. BACKGROUND

Because this case was decided below on a motion to dismiss, we rehearse the facts as revealed by the complaint and the documents annexed thereto. See SEC v. Tambone, 597 F.3d 436, 438 (1st Cir.2010) (en banc).

The defendant is a Delaware limited liability company. Its single member is a Delaware corporation that maintains its principal place of business in New York. The defendant sells brokerage execution, clearance, and investment products and services to other financial organizations. Its customers are typically registered broker-dealers and investment advisers that trade securities on behalf of their clients.

One of the services that the defendant offers is called NetExchange Pro. This is an electronic platform that gives subscribing financial organizations (introducing firms) an interface for obtaining research and managing brokerage accounts via the Internet. When an introducing firm uses NetExchange Pro, end-users (employees of the introducing firm, such as investment consultants) can use the service to access remotely a wealth of information about market dynamics and customer accounts.

The introducing firm may make its clients' nonpublic personal information, including social security numbers and taxpayer identification numbers, accessible to certain authorized end-users in NetExchange Pro. Some of the defendant's employees also have access to this information.

The plaintiff is a citizen of Massachusetts. She maintains a brokerage account at National Planning Corporation (NPC), one of the introducing firms that uses the NetExchange Pro service. NPC and the defendant are parties to a clearing agreement (the Agreement), which governs their rights and responsibilities with respect to the service and the associated data. Because NPC has made its customers' account information accessible in NetExchange Pro, the plaintiff, like all NPC customers, has received a disclosure statement from the defendant alerting her to the provisions of the Agreement.

As evinced in her complaint, the plaintiff's concern is that her nonpublic personal information has been left vulnerable to prying eyes because it is inadequately protected by the defendant's service. She asserts, among other things, that authorized end-users can access and store her data at home and elsewhere, twenty-four hours a day and seven days a week, in unencrypted form; that the data, once saved by an authorized user, can potentially be accessed by hackers or other third parties; that the defendant fails adequately to monitor unauthorized access to her information; and that it employs inadequate methods for end-user authentication.

With these concerns velivolant, the plaintiff filed a putative class action against the defendant in the United States District Court for the District of Massachusetts. Citing the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. §§ 1332(d), 1453, 1711–1715, she invoked the district court's original jurisdiction by alleging diversity of citizenship between the defendant and at least one member of the putative class (herself) and the existence of an aggregate amount in controversy in excess of $5,000,000, see id. § 1332(d)(2)(A).¹ The complaint alleged breach of contract, breach of implied contract, negligent breach of contractual duties, violations of Massachusetts consumer protection laws, and other infractions not relevant here.

The defendant moved to dismiss the action on grounds that the plaintiff lacked Article III standing, see Fed.R.Civ.P. 12(b)(1), and that she failed to state a claim upon which relief could be granted, see Fed.R.Civ.P. 12(b)(6). After some backing and filling, the details of which need not concern us, the district court granted the motion to dismiss. See Katz v. Pershing, LLC, 806 F.Supp.2d 452 (D.Mass.2011). The court disposed of all the plaintiff's claims for want of either constitutional or statutory standing. See id. at 457–61. This timely appeal ensued.

II. ANALYSIS

“The existence vel non of standing is a legal question and, therefore, engenders de novo review.” Me. People's Alliance & Natural Res. Def. Council v. Mallinckrodt, Inc., 471 F.3d 277, 283 (1st Cir.2006). In considering the pre-discovery grant of a motion to dismiss for lack of standing, “we accept as true all well-pleaded factual averments in the plaintiff's ... complaint and indulge all reasonable inferences therefrom in his favor.” Deniz v. Mun'y of Guaynabo, 285 F.3d 142, 144 (1st Cir.2002). A similar standard of review obtains for motions to dismiss under Rule 12(b)(6). See Nisselson v. Lernout, 469 F.3d 143, 150 (1st Cir.2006). With respect to either type of decision, “[w]e are not wedded to the lower court's rationale, but may affirm the order of dismissal on any ground made manifest by the record.” Román–Cancel v. United States, 613 F.3d 37, 41 (1st Cir.2010); see Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir.2007).

Because no class was certified below, we evaluate only whether the plaintiff herself has constitutional and statutory standing to pursue the action. See Nat'l Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 255 & n. 3, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994). We begin this evaluation with a discussion of the requirements of Article III standing. With this foundation in place, we appraise the plaintiff's claims in two groups: those alleging abridgment of her common-law rights and those alleging violations of the rights conferred by certain state consumer protection laws, see Mass. Gen. Laws ch. 93A (Chapter 93A); id. ch. 93H (Chapter 93H).

A. Principles of Constitutional Standing.

The Constitution limits the judicial power of the federal courts to actual cases and controversies. U.S. Const. art. III, § 2, cl. 1. A case or controversy exists only when the party soliciting federal court jurisdiction (normally, the plaintiff) demonstrates “such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends.” Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962). The standing inquiry is claim-specific: a plaintiff must have standing to bring each and every claim that she asserts. Pagán v. Calderón, 448 F.3d 16, 26 (1st Cir.2006).

To satisfy the personal stake requirement, a plaintiff must establish each part of a familiar triad: injury, causation, and redressability. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). “[E]ach element must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.” Id. at 561, 112 S.Ct. 2130; see Bennett v. Spear, 520 U.S. 154, 167–68, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997).

The first element of Article III standing is injury in fact. This element is defined as “an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical.” Defenders of Wildlife, 504 U.S. at 560, 112 S.Ct. 2130 (footnote, citations, and internal quotation marks omitted). These are distinct characteristics. Particularity demands that a plaintiff must have personally suffered some harm. See id. at 560 n. 1, 112 S.Ct. 2130. The requirement of an actual or imminent injury ensures that the harm has either happened or is sufficiently threatening; it is not enough that the harm might occur at some future time. Id. at 564, 112 S.Ct. 2130.

The second element is causation. This element requires the plaintiff to show a sufficiently direct causal connection between the challenged action and the identified harm. See id. at 560, 112 S.Ct. 2130. Such a connection “cannot be overly attenuated.” Donahue v. City of Boston, 304 F.3d 110, 115 (1st Cir.2002). Because the opposing party must be the source of the harm, causation is absent if the injury stems from the independent action of a third party. See Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 41–42, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976).

The final element is redressability. The plaintiff must show that a favorable resolution of her claim would likely redress the professed injury. Redressability is a matter...