In re VeriSource Services, Inc. Data Breach Litigation

Summary

The United States District Court for the Southern District of Texas adopted a magistrate judge’s Memorandum and Recommendation in litigation arising from an alleged VeriSource data breach. The court overruled defendants’ objections, held that plaintiffs plausibly alleged standing, damages, traceability, and negligent hiring, and denied dismissal of the negligence claim against VeriSource and the negligent hiring claim against Southwest Water Company and Planned Administrators. The court dismissed several other claims with prejudice, including negligence per se, contract, unjust enrichment, declaratory judgment, and injunctive relief claims.

Holdings

1. Plaintiffs sufficiently alleged damages to support their negligence claims against VeriSource, so dismissal of those claims under Rule 12(b)(6) was denied.
2. The court declined to dismiss the claims based on the alleged availability of emotional-distress damages at this stage, while permitting defendants to renew the issue at summary judgment after discovery and development of an undisputed factual record.
3. Plaintiffs plausibly alleged injury in fact and traceability sufficient to survive the Rule 12(b)(1) standing challenge.
4. Plaintiffs plausibly alleged negligent hiring claims against Southwest Water and Planned Administrators, so dismissal of those claims under Rule 12(b)(6) was denied.
5. The claims for negligence per se, breach of implied contract, breach of third-party beneficiary contract, unjust enrichment, declaratory judgment, and injunctive relief against VeriSource were dismissed with prejudice. The claims for negligence, negligence per se, unjust enrichment, breach of implied contract, declaratory judgment, and injunctive relief against Southwest Water and Planned Administrators were dismissed with prejudice.

Questions Presented

1. Whether plaintiffs sufficiently alleged damages to support negligence claims against VeriSource under Rule 12(b)(6).
2. Whether plaintiffs could pursue emotional-distress damages at the pleading stage.
3. Whether plaintiffs plausibly alleged injury in fact and traceability sufficient to establish Article III standing against Southwest Water and Planned Administrators under Rule 12(b)(1).
4. Whether plaintiffs plausibly alleged negligent hiring claims against Southwest Water and Planned Administrators based on their alleged failure to vet or investigate VeriSource's data-security protocols.
5. Which claims should be dismissed under Rule 12(b)(6).

Disposition

other