Consumer Protection Laws: Actual or Impending, Not Hypothetical Future, Injury Required to Bring Claim under Statute, Says First Circuit

Standing to Bring Claim for Violation of Consumer Protection Laws, Katz v. Perishing, LLC, 2012 WL 612793 (1st Cir. Feb. 28, 2012).

Summary: Plaintiff, brokerage accountholder, brought a putative class action claiming that the defendant, clearing broker, failed to protect sensitive nonpublic information. Plaintiff asserted that the defendant charged fees that were passed on to accountholders for protecting account-holders’ electronically stored non-public personal information, when in fact account-holders’ information was vulnerable to unauthorized access, and plaintiff asserted claims for violations of Massachusetts Unfair and Deceptive Trade Practices Act, breach of contract, and breach of implied contract. The First Circuit affirmed the judgment of dismissal because Plaintiff’s contract claim was barred by her lack of third-party beneficiary standing and the Plaintiff did not have constitutional standing to assert a violation of the applicable consumer protection law.

Discussion: Defendant offers a service called NetExchange Pro which gives subscribing financial organizations an interface for obtaining research and managing brokerage accounts via the Internet, allowing employees of the organization (end-users) to access remotely information about market dynamics and customer accounts including nonpublic personal information. Plaintiff maintains a brokerage account at National Planning Corporation (NPC), one of the organizations that uses NetExchange Pro, and plaintiff received a disclosure statement from the defendant alerting her to the provisions of the clearing agreement.

The First Circuit found that, plaintiff does not qualify as a third-party beneficiary because the Agreement contains an explicit statement that it is not intended to confer any benefits on third parties including, but not limited to, customers of NPC. Regarding the consumer protections claim, the First Circuit found that (1) because plaintiff did not alleged that her nonpublic personal information actually has been accessed by any unauthorized person, and her cause of action rested entirely on the possibility that at some point an unauthorized, as-yet unidentified, third party might access her data and then attempt to appropriate her identity and (2) the plaintiff alleged only that there is an increased risk that someone might access her data and therefore an increased risk of identity theft and other inauspicious consequences, that plaintiff did not satisfy the U.S. Constitution Article III’s requirement of actual or impending injury.

ImplicationsThe First Circuit underscored that in order to have standing under a consumer protection law, the plaintiff must allege that he has been or will in fact be perceptibly harmed, not that there are circumstances in which the plaintiff could possibly be affected. The First Circuit also noted that this case illuminates how innovations and problems of the electronic age have created new challenges for courts, but the plaintiff still must plead the minimum requirements of Article III standing.

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