Selco Cmty. Credit Union v. Noodles & Co.

• Citation: 267 F.Supp.3d 1288
• Decision Date: 21 July 2017
• Docket Number: Civil Action No. 16–cv–02247–RBJ,Consolidated with 16–cv–02497–RBJ,16–cv–02632–RBJ
• Parties: SELCO COMMUNITY CREDIT UNION, Midwest America Federal Credit Union, Veridian Credit Union, and Kemba Financial Credit Union, on behalf of themselves and a class of similarly situated Financial Institutions, Plaintiffs, v. NOODLES & COMPANY, Defendant.
• Court: U.S. District Court — District of Colorado

267 F.Supp.3d 1288

SELCO COMMUNITY CREDIT UNION, Midwest America Federal Credit Union, Veridian Credit Union, and Kemba Financial Credit Union, on behalf of themselves and a class of similarly situated Financial Institutions, Plaintiffs,

v.NOODLES & COMPANY, Defendant.

Civil Action No. 16–cv–02247–RBJ

Consolidated with 16–cv–02497–RBJ

16–cv–02632–RBJ

United States District Court, D. Colorado.

Signed July 21, 2017

Brian C. Gudmundson, Zimmerman Reed, P.L.L.P., Karen Hanson Riebel, Kate M. Baxter–Kauf, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, Charles Hale Van Horn, Berman Fink Van Horn, P.C., Atlanta, GA, Erin Green Comite, ScottScott, Attorneys at Law, LLP, Stephen John Teti, Scott & Scott, LLP, Colchester, CT, Gary F. Lynch, Jamisen A. Etzel, Carlson Lynch Sweet Kilpela & Carpenter LLP, Pittsburgh, PA, James J. Pizzirusso, Swathi Bojedla, Hausfeld, LLP, Washington, DC, Joseph Peter Guglielmo, Scott & Scott, Attorneys at Law, LLP, New York, NY, for Plaintiffs.

Paul Gregory Karlsgodt, Xakema Henderson, Baker & Hostetler, LLP, Denver, CO, for Defendant.

ORDER GRANTING DEFENDANT's MOTION TO DISMISS

R. Brooke Jackson, United States District Judge

Defendant Noodles & Company moves to dismiss plaintiffs' amended consolidated complaint. ECF No. 34. The motion is granted. Accordingly, plaintiffs' renewed motion for appointment of interim class counsel, ECF No. 47, is moot.

BACKGROUND

In early 2016 hundreds of Noodles & Company restaurants suffered a cyberattack targeting customers' credit and debit card information. Plaintiffs are four credit unions whose cardholders' information might have been compromised by the data breach. Plaintiffs allege that because of the breach they have had to cancel and reissue affected cards, close and reopen the corresponding accounts, respond to cardholders' inquiries about the breach, monitor accounts for fraudulent charges, investigate such charges, and refund cardholders for any unauthorized charges that went through. Plaintiffs also claim to have lost revenue due to their cardholders' decrease in credit and debit card usage after the breach was publicized.

In September 2016 plaintiff SELCO Community Credit Union filed suit against Noodles & Company for its alleged failure to prevent the data breach. ECF No. 1. Two months later this case was consolidated with two other actions, ECF No. 23, and on November 30, 2016 plaintiffs filed an amended consolidated class action complaint, ECF No. 27. This complaint seeks to bring an action for negligence, negligence per se, and declaratory relief for the plaintiffs individually and on behalf of all other similarly situated financial institutions. Plaintiffs have filed a motion for appointment of interim class counsel, ECF No. 28, and they recently renewed this motion, ECF No. 47.

On January 17, 2017 Noodles & Company filed a motion to dismiss. ECF No. 34. The motion has been fully briefed. ECF Nos. 36, 43.

STANDARD OF REVIEW

To survive a 12(b)(6) motion to dismiss, the complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). While the Court must accept the well-pleaded allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie , 300 F.3d 1208, 1210 (10th Cir. 2002), purely conclusory allegations are not entitled to be presumed true, Ashcroft v. Iqbal , 556 U.S. 662, 681, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, he has met the threshold pleading standard. See Twombly , 550 U.S. at 556, 127 S.Ct. 1955. "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Miller v. Glanz , 948 F.2d 1562, 1565 (10th Cir. 1991).

ANALYSIS

Noodles & Company primarily argues that the economic loss rule bars plaintiffs' claims. The economic loss rule generally forbids recovery in tort for pure financial losses caused by a defendant's negligence in its performance of a contractual duty. Noodles & Company asserts that plaintiffs' alleged economic injuries are not cognizable under a negligence theory because its duty of care was specified by the network of interrelated contracts among the company, its bank, the bank card associations, and plaintiffs.

However, before reviewing the merits of this argument, the Court must consider which state's tort law applies to this dispute. Noodles & Company contends that a choice of law analysis would select the laws of plaintiffs' home states, and that the economic loss rules of these states (as well as Colorado) uniformly bar plaintiffs' claims. In response, plaintiffs argue that the analysis would actually favor applying Colorado law and, in any event, that there is no conflict between the laws of Colorado and plaintiffs' home states because each state would recognize their claims.

When more than one body of law may apply to a claim, the Court "need not choose which body of law to apply unless there is an outcome determinative conflict between the potentially applicable bodies of law." Iskowitz v. Cessna Aircraft Co. , No. 07-CV-00968-REB-CBS, 2010 WL 3075476, at *1 (D. Colo. Aug. 5, 2010) ; see also Restatement (Second) of Conflict of Laws § 145 cmt. i (1971) ("When certain contacts involving a tort are located in two or more states with identical local law rules on the issue in question, the case will be treated for choice-of-law purposes as if these contacts were grouped in a single state."). If there is no such conflict there is no choice of law issue, and the forum state's law applies.

Although each state's economic loss rule has its own nuances, the relevant states all have a core standard in common. Every state at issue here—Colorado, Oregon, Ohio, Indiana, and Iowa—has adopted the economic loss rule. See Town of Alma v. AZCO Const., Inc. , 10 P.3d 1256, 1264 (Colo. 2000) ; Abraham v. T. Henry Const., Inc. , 350 Or. 29, 249 P.3d 534, 540 (2011) ; Corporex Dev. & Constr. Mgt., Inc. v. Shook, Inc. , 106 Ohio St.3d 412, 835 N.E.2d 701, 704 (2005) ; Indianapolis–Marion Cnty. Pub. Library v. Charlier Clark & Linard, P.C. , 929 N.E.2d 722, 736 (Ind. 2010) ; Annett Holdings, Inc. v. Kum & Go, L.C. , 801 N.W.2d 499, 504 (Iowa 2011).

As plaintiffs point out, each of these states also has an exception allowing for recovery of economic losses due to the breach of a duty arising independently of any contractually created duties. See Town of Alma , 10 P.3d at 1264 (holding that Colorado's economic loss rule applies "absent an independent duty of care under tort law"); Abraham , 249 P.3d at 540 (noting that Oregon's economic loss rule applies unless the tortfeasor is subject to "a standard of care that is independent of the terms of the contract," such as when a statute or special relationship provides for a heightened duty of care); Pavlovich v. Nat'l City Bank , 435 F.3d 560, 569 (6th Cir. 2006) ("Ohio law prevents the recovery of purely economic losses in a negligence action...where recovery of such damages is not based upon a tort duty independent of contractually created duties."); Indianapolis–Marion Cnty. Pub. Library , 929 N.E.2d at 736 (anticipating exceptions to Indiana's economic loss rule for breach of independent duties of care including "lawyer malpractice, breach of a duty of care owed to a plaintiff by a fiduciary, [and] breach of a duty to settle owed by a liability insurer to the insured"); Annett Holdings , 801 N.W.2d at 504, 506 n.3 (noting that the independent duty inquiry "rephrases the question, but does not answer it," yet recognizing such exceptions from the economic loss rule under Iowa law for "claims of professional negligence against attorneys and accountants" and "when the duty of care arises out of a principal-agent relationship").

Since all of the relevant states have comparable independent duty exceptions to the economic loss rule, there is no outcome-determinative conflict of law here. Accordingly, Colorado law controls this dispute, though the outcome of this case would necessarily be the same if the laws of plaintiffs' home states applied instead.¹

On the merits, Noodles & Company argues that the duties of care it allegedly breached stem not from an independent duty, but from the series of contracts governing plaintiffs' payment-card networks. When a customer swipes a credit or debit card at Noodles & Company the merchant routes the payment request through a payment-card network governed by a bank card association, the largest of which are Visa and MasterCard. The transaction is sent electronically to the customer's "issuing bank," the financial institution that issued the payment card. (SELCO Community Credit Union and the other plaintiffs are issuing banks.) After the issuing bank authorizes the transaction Noodles & Company notifies its "acquiring bank," the financial institution that processes credit and debit card payments for the merchant. The acquiring bank forwards funds to Noodles & Company to satisfy the transaction, and it is then reimbursed by the customer's issuing bank. Am. Compl., ECF No. 27 at ¶ 22; Mot. to Dismiss, ECF No. 34 at 2.

Both Visa and MasterCard have sets of rules that directly regulate issuing banks and acquiring banks. These rules are passed on through issuing banks' agreements with cardholders and acquiring banks' agreements with merchants. See Am. Compl., ECF No. 27 at ¶¶ 25, 32; Mot. to Dismiss, ECF No. 34 at 2–3; see also, e.g. , Visa Rules, ECF No. 34–1, § 1.10.4.1 ("A Member must ... [e]nsure that agreements and contracts with agents and Merchants clearly establish their responsibility to meet Visa standards...."); MasterCard Rules, ECF No. 43–2, § 5.1 (...