JDSupra

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Significant Case Developments

P.F. Chang’s Seeks Dismissal of Data Breach Class Actions, Arguing the Existence of an Express Contract and Lack of Damages Preclude Claims
Lewert v. P.F. Chang’s China Bistro, Inc., No. 1:14-cv-04787 (N.D. Ill.).

As we described in July and September, P.F. Chang’s was hit with three putative class actions following its announcement of a point-of-sale data breach. On August 29, P.F. Chang’s moved for dismissal of the first two cases, now consolidated in the Northern District of Illinois. In their complaints, plaintiffs John Lewert and Lucas Kosner alleged that by failing to safeguard customer information, P.F. Chang’s breached an implied contract and violated consumer protection laws. The plaintiffs did not bring a breach of express contract claim. P.F. Chang’s argues that the plaintiffs acknowledge the existence of an express contract by alleging that “a portion of the services [they] purchased” at P.F. Chang’s was “compliance with industry-standard measures” for data security and that they were “deprived of the full monetary value of [their] transaction.”

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Most large venture deals require that the Company’s outside legal counsel issue a customary legal opinion, addressed to the investors in the financing, in order to give the investors comfort that the company’s legal affairs are in order. For companies that have been represented since formation by large regional or national counsel with venture capital experience, this requirement generally is not overly burdensome. However, where counsel has not represented the company since formation or is unfamiliar with VC deals, the legal opinion can become an expensive part of the process and a potential delay in the timing of the financing. Below is a short primer on why VCs require legal opinions and the process and cost typically required for a law firm to issue such an opinion.

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In Pennsylvania, testifying experts usually are not deposed before trial; typically, their written reports are provided in advance of trial and delineate the substance and scope of their testimony. Attorneys often wish to communicate with their client’s expert and comment on drafts of the reports. Until April 2014, the law was not clear whether these communications were discoverable. This uncertainty made it problematic and potentially perilous for a party’s attorney to communicate with the party’s testifying expert, particularly in advance of the disclosure of the expert’s report. In Barrick v. Holy Spirit Hosp. of the Sisters of Christian Charity, No. 2014 WL 1688447 (Pa. Apr. 29, 2014), the Justices of the Supreme Court of Pennsylvania took up the issue of the discovery of attorney-expert communications and split 3-3. This left intact the Superior Court’s bright-line rule preventing discovery of attorney-expert communications—a rule now to be applied by Pennsylvania trial courts.

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Last Friday, in the wake of numerous data breaches, President Obama signed a new Executive Order that will change how federal agencies use payment cards and allow access to certain government portals. Those changes include the adoption of chip-and-PIN (also known as EMV) payment terminals and cards, and the implementation of multi-factor authentication on digital applications where consumers can access personal information.

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As reported this week by Law360 (subscription required), the Financial Industry Regulatory Authority (FINRA) recently issued a reminder (Regulatory Notice 14-40) warning firms against the use of confidentiality provisions in settlement agreements that prohibit or otherwise restrict customers or anyone else (such as current employees) from communicating with the Securities Exchange Commission (SEC), FINRA, or any federal or state regulatory authority regarding a possible securities law violation.

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The California Court of Appeal recently provided rare guidance regarding a third party’s obligations to produce electronically stored information (ESI) in response to a subpoena. In Vasquez v. California School of Culinary Arts, Inc. (Sallie Mae) (August 27, 2014, B250600) Cal.App.4th (2014 WL 4793703), the court defined subpoenaed parties’ obligations to extract existing data from computer systems and upheld an award of attorneys’ fees against the recalcitrant third party. The court concluded that it is unreasonable for a third party to withhold ESI that exists in its computer systems on the basis that outputting the ESI entails creating a “new” spreadsheet.

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Could the third time be the charm? Today, the U.S. Supreme Court granted the petition for certiorari filed in May 2014 by the Texas Department of Housing and Community Affairs (Texas DHCA) in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.

The case gives the Supreme Court its third opportunity since 2012 to rule on the issue of whether disparate impact claims are cognizable under the Fair Housing Act. The prior two cases, Twp. Of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. and Magner v. Gallagher, were both settled after the completion of briefing but before the Court could hear oral argument and answer the question presented. This time around the Court granted the certiorari petition without first soliciting the views of the Solicitor General.

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On July 14, 2014, the Court in United States v. University of Nebraska at Kearny (No. 4:11CV3209) took a significant step in support of Federal Rules 1 and 26. Magistrate Judge Cheryl R. Zwart denied plaintiff’s motion to compel defendants to use plaintiffs’ proposed search terms to cull electronically stored information (ESI) for review and production. The Court’s order effectively discharged defendants’ obligation to produce any ESI. And the Court issued this order notwithstanding both that 1) the parties had agreed to a stipulation summarizing protocol for the production of ESI shortly after the outset of the case, and 2) plaintiff previously produced ESI as part of its production to defendants’ discovery requests. In short, plaintiffs’ unwillingness to fairly compromise as to the breadth of search terms aimed at reasonably limiting the scope of ESI production came back to bite.

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Imagine for a moment that you are the HR Manager for a company with many physically demanding jobs. One of your employees submits a doctor’s note prohibiting her from lifting anything over 25 pounds. Mindful of your obligations under the Americans with Disabilities Act (ADA), you check to see if the lifting restriction will prevent the employee from doing her job. Unfortunately, after checking the employee’s job description and talking with her supervisors, you conclude that lifting is a key part of the employee’s job (in legal terms, an “essential function”), and there is nothing practical that can be done (in legal terms, no “reasonable accommodation”) to allow her to perform her job. When you tell the employee that she cannot return to her job, she asks if there are other positions available within the company that she can be transferred to. You say you’ll look into it, but when you start asking around, things get complicated. There are a handful of open positions in other departments, but the job requirements are different and some of the positions already have applicants who seem better qualified. None of the positions have exactly the same pay as the employee’s warehouse position, so she would either be getting a raise or a demotion. What should you do?

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“Cyber liability insurance” is often used to describe a range of insurance policies, in the same way that the word cyber is used to describe a broad range of information security related tools, processes and services. Everyone is talking about the need for “stand alone” cyber liability insurance policies. These stand-alone cyber liability insurance policies basically cover expenses related to the management of a breach, e.g, the investigation, remediation, notification and credit checking. However, cyber liability coverage is also found in some existing insurance policies, including kidnap and ransom and professional liability coverage. There may also be some limited coverage through a crime policy if electronic theft is added to that policy.

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