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DRI - The Powerful Economic-Loss Rule - Defending the Business-to-Business Data-Breach Lawsuit by Alex M. Pearce

Jan 3, 2018 | Raleigh, NC
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Alex M. Pearce

This article was originally published in the December 2017 issue of DRI’s For The Defense magazine.

Defending the Business-to-Business Data-Breach Lawsuit

Hardly a day goes by without a headline announcing that a prominent company has fallen victim to a data breach.  These headlines are followed, almost inevitably, by reports of class action lawsuits filed by consumers whose data was compromised.

In the typical data-breach case, these consumers sue the breached company before thieves have misused their data.  The alleged injury, then, is usually an increased risk of future fraud or identity theft.

Future harm, however, is often not enough to establish Article III standing in a federal court.  Thus consumers have had only limited success in these databreach lawsuits.

When a data breach affects a company’s business partners, on the other hand, they’re much more likely to suffer direct financial loses that can be readily identified.  Business plaintiffs in data-breach lawsuits thus have little trouble alleging an “injury in fact” sufficient to establish standing.

With standing-based arguments foreclosed, how else can a company defend against data-breach lawsuits brought by its business partners?

According to a recent decision from a federal court in Colorado, one potentially powerful defense is the economic-loss rule, which prevents plaintiffs who suffer economic losses stemming from a contract from trying to recover those losses through non-contract claims.

This column examines that decision and its implications for defendants in business-to- business databreach lawsuits.

Read the full article here.