Matthew Kuhns v. Scottrade, Inc.
2017 U.S. App. LEXIS 15817
| 8th Cir. | 2017Background
- In 2013 hackers accessed Scottrade’s customer database and stole PII for >4.6 million customers; the breach was used in various illegal schemes. Scottrade learned of the breach in August 2015 and notified customers in October 2015, offering identity-protection services and credit monitoring.
- Plaintiff Matthew Kuhns opened a Scottrade account in 2005 and agreed to a Brokerage Agreement that included a Privacy Statement and Security Statement promising safeguards (SSL, layered security, compliance with laws) for customer PII.
- Plaintiffs filed a consolidated putative class action asserting breach of contract, breach of implied contract, unjust enrichment, declaratory relief, and violation of the Missouri Merchandising Practices Act (MMPA). The district court dismissed for lack of Article III standing (Rule 12(b)(1)) and entered dismissal with prejudice; it did not decide Rule 12(b)(6).
- On appeal the Eighth Circuit held that Kuhns has Article III standing for his contract-related claims because he alleged an economic injury (diminished benefit of the bargain / overpayment for services including promised security).
- The court nevertheless affirmed dismissal on the merits (Rule 12(b)(6)): the complaint failed to plausibly plead (1) specific contractual breaches or legal/regulatory violations, (2) actual damages from identity theft or financial loss, (3) adequate factual detail for implied-contract or unjust-enrichment claims, (4) a proper declaratory-judgment claim, and (5) an MMPA claim pleaded with requisite particularity and connection to a purchase of "merchandise."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing for contract-related claims | Kuhns allegedly paid fees that included data-security services; breach diminished value of bargain => economic injury | No concrete injury: only increased risk, worry, and mitigation costs; insufficient for standing | Held: Kuhns has standing for contract-related claims (diminished benefit of bargain is a concrete injury) |
| Breach of express contract (Rule 12(b)(6)) | Privacy/Security statements in Brokerage Agreement/Privacy Statement were promises; breach shown by occurrence of data breach | Statements are contractual recitals or non-specific; complaint lacks particular facts identifying what security promises were broken or which laws were violated | Held: Dismissed — complaint fails to plausibly allege specific contractual breach or requisite factual detail |
| Implied contract / unjust enrichment | Scottrade’s representations created implied duty to protect PII; retention of fees is unjust | Express contract covers security; plaintiff fails to identify fees earmarked for security or specific failures | Held: Dismissed — claims implausible and barred when express contract governs the subject matter |
| MMPA and declaratory relief | Scottrade’s deceptive security representations, delayed notice, and failure to warn caused ascertainable loss and consumer harm | MMPA claim sounds in fraud (not pleaded with Rule 9(b) particularity); no sale of "merchandise" (security not sold); declaratory claim seeks retrospective relief and is not plausibly pleaded | Held: Dismissed — MMPA claim inadequately pleaded; declaratory claim fails Iqbal standard |
Key Cases Cited
- Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (Article III injury-in-fact must be concrete and particularized)
- Clapper v. Amnesty Int’l, USA, 133 S. Ct. 1138 (2013) (future injury must be actual and imminent, not speculative)
- Carlsen v. GameStop, Inc., 833 F.3d 903 (8th Cir. 2016) (party to breached contract may have standing based on diminished value of subscription/bargain)
- OmegaGenesis Corp. v. Mayo Found. for Med. Educ. & Research, 851 F.3d 800 (8th Cir. 2017) (pleading standard and Rule 9(b) fraud particularity)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must include factual enhancement beyond naked assertions)
- ABF Freight Sys., Inc. v. Int’l Bhd. of Teamsters, 645 F.3d 954 (8th Cir. 2011) (standing principles in contract context)
- Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688 (7th Cir. 2015) (appellate review of Rule 12(b)(6) where jurisdictional dismissal was erroneous)