Schnucks Wants Federal Court To Handle Data Breach Lawsuit

May 24, 2013 – In The News
Computer World

Scott Vernick was quoted in the Computer World article "Schnucks Wants Federal Court To Handle Data Breach Lawsuit." While the full text can be found in the May 24, 2013, issue of Computer World, a synopsis is noted below.

The grocery chain Schnucks Markets has claimed that a potential class action lawsuit filed against it in an Illinois state court over a recent data breach belongs in federal court due to the number of people who suffered financial injury from the breach and the fact that they are from multiple states.

Earlier this year, the company disclosed a data breach that it said exposed data on about 2.4 million credit and debit cards used by customers at 79 stores.

The disclosure prompted a lawsuit from an Illinois customer who accused the company of negligence and of not informing affected individuals quickly enough of the breach. The lawsuit sought actual damages from Schnucks for the numerous hours and effort that individuals allegedly put into cancelling and replacing their cards. It also accused Schnucks of willful and wanton neglect, a charge for which punitive damages are available under Illinois law.

The potential punitive damages involved in the case far exceed the $5 million requirement for federal consideration, the motion said in arguing for removal of the case to the District Court. Schnucks’ motion, filed earlier this month, notes the potential amount in controversy is equal to approximately $7.25 million.

Scott Vernick said that Schnucks' effort to move the case to federal court appears to be a calculated gambit.

Federal courts are generally better equipped and more experienced at handling large class-action data breach lawsuits, so Schnucks might believe it has a fairer shot there than in a state court, he said.

Importantly, data breach lawsuits such as the one filed against Schnucks have also not tended to fare very well in federal courts, Vernick added. Often, federal courts dismiss breach lawsuits because they have not been convinced the alleged victims have in fact suffered actual financial injury from a breach, he said.

Vernick noted the downside to Schnucks' effort to get the case to federal court is that it is in a sense admitting that potential damages against it could be tens of millions of dollars. Any company that admits it faces more than $5 million in potential damages from a lawsuit will later have a hard time backing away from that number if the case goes against it, he added.