Taxpayers Face Big Standing Hurdle in IRS Data Breach Suit

August 25, 2015 – In The News
Law360

Scott L. Vernick was quoted in the Law360 article, “Taxpayers Face Big Standing Hurdle in IRS Data Breach Suit.” Full text can be found in the August 25, 2015, issue, but a synopsis is below.

It could be an uphill battle for a proposed class accusing the IRS of failing to prevent a data breach that affected approximately 330,000 taxpayers.

In recent months, a number of cases filed after hackers breached company databases and stole personal information of millions of customers have been thrown out due to lack of standing, according to Scott Vernick, a noted privacy attorney.

While the IRS suit is being brought against a government agency, it is subject to the same high standard set by a 2013 U.S. Supreme Court decision, Vernick said.

“It will face the same hurdles every one of these cases faces: whether or not plaintiffs bringing these kinds of cases can adequately allege standing,” he said.

Vernick estimates that about 80 percent of the lawsuits filed against companies in the wake of data breaches have been dismissed for lack of standing.

Since a landmark decision by the Supreme Court in 2013 in Clapper v. Amnesty International USA, plaintiffs have had to meet a higher standard and prove that they suffered actual harm or an impending injury in order to show standing, Vernick said.

There have been some notable exceptions in cases in which a judge has ruled the threat of future harm to be sufficient in establishing standing, particularly in the Ninth Circuit, Vernick noted.

In other data breach cases, judges have found either some real out-of-pocket expenditures or other tangible damages that allowed plaintiffs to allege standing, he noted.

According to Vernick, the IRS case is helped by reports by the U.S. Department of the Treasury inspector general for tax administration and the U.S. Government Accountability Office that warned the IRS to enhance its data security due to vulnerabilities, Vernick said.

“Here they have a lot of history about being on notice and not doing things to correct it, which is never a great place to be,” he said.

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