Privacy & Information Security Law Blog

On July 26, 2022, the attorneys general of New Jersey, Pennsylvania, Delaware, Maryland, Virginia, Florida and Washington D.C. announced an $8 million multistate settlement with Wawa Inc. that resolves the states’ investigation into a 2019 data breach that compromised approximately 34 million payment cards used by consumers at Wawa stores and fueling locations. 

This is an extraordinary and unprecedented time for the retail industry. Hunton Andrews Kurth’s 2020 Retail Industry Year in Review provides an in-depth analysis of the issues and challenges that retailers faced in the past year, and a look ahead at what they can expect in 2021. The Year in Review includes several articles authored by our privacy and cybersecurity lawyers, including on topics such as the cashier-less technology revolution, the California Privacy Rights Act of 2020 and “buy now, pay later” plans.

Read the full publication.

On October 31, 2017, the New York and Vermont Attorneys General (“Attorneys General”) announced a settlement with Hilton Domestic Operating Company, Inc., formerly known as Hilton Worldwide, Inc. (“Hilton”), to settle allegations that the company lacked reasonable data security and waited too long to report a pair of 2015 data breaches, which exposed over 350,000 credit card numbers. The Attorneys General alleged that Hilton failed to maintain reasonable data security and waited more than nine months after the first incident to notify consumers of the breaches, in violation of the states' consumer protection and breach notification laws.

On August 1, 2017, a unanimous three-judge panel for the D.C. Circuit reversed the dismissal of a putative data breach class action against health insurer CareFirst, Attias v. CareFirst, Inc., No. 16-7108, slip op. (D.C. Cir. Aug. 1, 2017), finding the risk of future injury was not too speculative to establish injury in fact under Article III. 

On May 26, 2017, Alcoa Community Federal Credit Union (“Alcoa”), on behalf of itself, credit unions, banks and other financial institutions, filed a nationwide class action against Chipotle Mexican Grill, Inc. (“Chipotle”). The case arises from a breach of customer payment card data. The putative class consists of all such financial institutions that issued payment cards, or were involved with card-issuing services, for customers who made purchases at Chipotle from March 1, 2017, to the present. Plaintiffs allege a number of “inadequate data security measures,” including Chipotle’s decision not to implement EMV technology. 

On May 23, 2017, various attorneys general of 47 states and the District of Columbia announced that they had reached an $18.5 million settlement with Target regarding the states’ investigation of the company’s 2013 data breach. This represents the largest multi-state data breach settlement achieved to date.

On March 17, 2017, retailer Neiman Marcus agreed to pay $1.6 million as part of a proposed settlement (the “Settlement”) to a consumer class action lawsuit stemming from a 2013 data breach that allegedly compromised the credit card data of approximately 350,000 customers.

On March 9, 2017,  Home Depot Inc. (“Home Depot”) reached an agreement that includes the payment of $25 million and the implementation of new data security measures to resolve a putative class action brought by financial institutions impacted by the company’s 2014 data breach.

Recently, the U.S. District Court for the Northern District of Georgia dismissed a shareholder derivative lawsuit against Home Depot Inc. (“Home Depot”) arising over claims that Home Depot’s directors and officers (the “Defendants”) acted in bad faith and violated their duties of care and loyalty by disregarding their oversight duties in connection with a 2014 data breach. The case is In re Home Depot Inc. S’holder Derivative Litig., N.D. Ga., No. 1:15-CV-2999-TWT.

On November 7, 2016, Adobe Systems Inc. (“Adobe”) entered into an assurance of voluntary compliance (“AVC”) with 15 state attorneys general to settle allegations that the company lacked proper measures to protect its systems from a 2013 cyber attack that resulted in the theft of the personal information of millions of customers. Under the terms of the AVC, Adobe must pay $1 million to the attorneys general and implement new data security policies and practices.

Earlier this month, the Payment Card Industry Security Standards Council (“PCI SSC”) published a set of enhanced validation procedures designed to provide greater assurance that certain entities are maintaining compliance with the PCI Data Security Standard (“PCI DSS”) effectively and on a continuing basis. The payment card brands and acquirers will determine which organizations are required to undergo a compliance assessment with respect to these supplemental validation requirements, which are entitled the PCI DSS Designated Entities Supplemental Validation (“DESV”).

Hunton & Williams Insurance Litigation & Counseling partner Lon Berk reports:

As the demand for cyber insurance has skyrocketed, so too has the cost. One broker estimates that sales in 2014 will double from the $1 billion premium collected in 2013. Much of the increase in demand and cost has been the result of the widely publicized hacks of the point-of-sale systems at large retailers, and the primary emphasis of most cyber policies is to address liability arising from such events. New payment technologies, however, will change the need for this type of cyber insurance. American Express recently announced a token service; Apple incorporated ApplePay into its new iPhones; and a group of retailers, the Merchant Customer Exchange, is working on the release of a new payment technology as well. These technologies, although different in detail, eliminate the need for merchants to collect unencrypted payment card information from customers, significantly reducing the risk created by point-of-sale malware.

On April 7, 2014, the U.S. District Court for the District of New Jersey issued an opinion in Federal Trade Commission v. Wyndham Worldwide Corporation, allowing the FTC to proceed with its case against the company. Wyndham had argued that the FTC lacks the authority to regulate data security under Section 5 of the FTC Act. The judge rejected Wyndham’s challenge, ruling that the FTC can charge Wyndham with unfair data security practices. The case will continue to be litigated on the issue of whether Wyndham’s data security practices constituted a violation of Section 5.

On March 11, 2013, in Tyler v. Michaels Stores, Inc., the Massachusetts Supreme Judicial Court effectively reinstated the suit against the retailer by answering favorably for the plaintiff three certified questions from the United States District Court for the District of Massachusetts regarding Massachusetts General Laws Chapter 93, Section 105(a) entitled “Consumer Privacy in Commercial Transactions” (“Section 105(a)”). The court ruled that (1) a ZIP code constitutes personal identification information under the Massachusetts law; (2) a plaintiff may bring an action for a violation of the Massachusetts law absent identity fraud; and (3) the term “credit card transaction form” refers equally to electronic and paper transaction forms. The Massachusetts court’s determination that a ZIP code constitutes personal identification information is similar to the determination in Pineda v. Williams-Sonoma Stores, Inc., in which the California Supreme Court held that ZIP codes are “personal identification information” under California’s Song-Beverly Credit Card Act. More than 15 states, including Massachusetts and California, have statutes limiting the type of information that retailers can collect from customers.

On February 4, 2013, the Supreme Court of California examined whether Section 1747.08 of the Song-Beverly Credit Card Act (“Song-Beverly”) prohibits an online retailer from requesting or requiring personal identification information from a customer as a condition to accepting a credit card as payment for an electronically downloadable product. In a split decision, the majority of the court ruled that Song-Beverly does not apply to online purchases in which the product is downloaded electronically.

As reported in BNA’s Privacy & Security Law Report, on December 14, 2012, a federal district court in California ruled that a retail store’s policy of collecting personal information only after providing customers with receipts does not violate the Song-Beverly Credit Card Act (“Song-Beverly”). Under Section 1747.08(a)(2) of Song-Beverly, a retailer that accepts credit cards for the transaction of business may not “[r]equest, or require as a condition to accepting the credit card as payment … the cardholder to provide personal identification information,” which the entity accepting the credit card then “writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise.”

On September 13, 2012, the PCI Security Standards Council (“PCI SSC”) issued new guidelines entitled “PCI Mobile Payment Acceptance Security Guidelines” (the “Guidelines”), which outline best practices for mobile payment acceptance security. As we reported in May, the PCI SSC Mobile Working Group published its “At a Glance: Mobile Payment Acceptance Security” fact sheet, detailing how merchants can more securely accept payments on mobile devices.

As reported in BNA’s Privacy & Security Law Report,on June 25, 2012, a federal district court in California ruled that the California Supreme Court’s 2011 Pineda decision, which held that requesting and recording zip codes during credit card transactions violates the state’s Song-Beverly Credit Card Act, applies retrospectively to OfficeMax’s collection of zip codes from its customers. The Plaintiffs in Dardarian v. OfficeMax had filed a class action lawsuit against OfficeMax over the company’s collection of ZIP code information from customers at the point of sale, a practice that OfficeMax ended the day the Pineda decision was handed down.

On May 16, 2012, the PCI Security Standards Council’s (“PCI SSC’s”) Mobile Working Group published its “At a Glance: Mobile Payment Acceptance Security” fact sheet (the “Guidance”), which outlines best practices for securely accepting payments via mobile devices. The Guidance offers merchants practical advice for partnering with a Point-to-Point Encryption (“P2PE”) solution provider and satisfying their PCI Data Security Standard compliance requirements in the context of mobile payment acceptance. The Guidance includes recommendations for maintaining data security throughout the payment lifecycle, including securing account data at the point of capture and using an approved hardware accessory in combination with a validated P2PE solution.

As reported in BNA’s Privacy & Security Law Report, on May 4, 2012, the United States District Court for the Southern District of California granted plaintiffs’ motion for class certification in an action against IKEA U.S. West, Inc. (“IKEA”) under the Song-Beverly Credit Card Act of 1971 (the “Song-Beverly Act”). The suit alleges that IKEA violated the Song-Beverly Act by requesting that cardholders provide their ZIP codes during credit card transactions, and then recording that information in an electronic database. The Court found that the class definition was not overbroad and that IKEA’s practice of requesting ZIP codes demonstrated common questions of law best resolved through a class action.

Last month, two New Jersey judges issued opposing decisions in class action lawsuits regarding merchants’ point-of-sale ZIP code collection practices. The conflicting orders leave unanswered the question of whether New Jersey retailers are prohibited from requiring and recording customers’ ZIP codes at the point of sale during credit card transactions.

On September 12, 2011, the Commissioner for Data Protection and Freedom of Information of the German federal state of North Rhine-Westphalia (“DPA”) imposed a fine of €60,000 on Easycash GmbH (“Easycash”), a leading German service provider for electronic payments.

Lush Cosmetics Ltd. (“Lush”) has avoided a monetary penalty for its breach of the UK Data Protection Act 1998.  Instead, the UK Information Commissioner’s Office (the “ICO”) has required Lush to sign an undertaking that obliges the company to “ensure that future customer credit card data will be processed in accordance with the Payment Card Industry Data Security Standard.”

On June 14, 2011, the PCI Security Standards Council’s Virtualization Special Interest Group published its “Information Supplement: PCI DSS Virtualization Guidelines”(the “Guidelines”) to Version 2.0 of the PCI Data Security Standard (“PCI DSS”).  The Guidelines provide context for the application of the PCI DSS to cloud and other virtual environments, and offer at least three critical reminders:

• the PCI DSS applies to cloud environments without exception; 
• critical analysis of the application of the PCI DSS to rapidly evolving cloud offerings is essential to compliance; and
• cloud providers must be prepared to document and contract for necessary controls.

On June 13, 2011, Representative Mary Bono Mack (R-CA) released a discussion draft of the Secure and Fortify Data Act (the “SAFE Data Act”), which is designed to “protect consumers by requiring reasonable security policies and procedures to protect data containing personal information, and to provide for nationwide notice in the event of a security breach.”  Representative Bono Mack is Chairman of the House Subcommittee on Commerce, Manufacturing and Trade.  In a press release, Representative Bono Mack remarked that “E-commerce is a vital and growing part of our economy.  We should take steps to embrace and protect it – and that starts with robust cyber security.”  She added that “consumers have a right to know when their personal information has been compromised, and companies and other organizations have an overriding responsibility to promptly alert them.”

On May 2, 2011, Sony Computer Entertainment America (“Sony”) disclosed that hackers had gained access to the personal information of 24.6 million customers who played games on the Sony Online Entertainment (“SOE”) network.  Sony stated that hackers may have accessed names, addresses and birth dates of SOE gaming customers, as well as credit card data of about 12,700 non-U.S. accounts and 10,700 bank account numbers from “an outdated database from 2007.”  Sony clarified that the SOE breach was not the result of a second attack, but rather occurred as part of the broad incursion against the company that affected 77 million PlayStation accounts, as the company previously disclosed on April 26.

On March 28, 2011, the Briar Group, LLC, owner and operator of several Boston-area bars and restaurants, reached a settlement with Massachusetts Attorney General Martha Coakley regarding the breach of “tens of thousands” of consumers’ payment card information.  The settlement resolves a lawsuit filed in Massachusetts Superior Court alleging that in April 2009 hackers gained access to the Briar Group’s computer systems and misappropriated customer data by installing malcode which was not removed by the company until December of that year.  The complaint further alleged that the Briar Group’s lax data protection practices, such as allowing employees to share computer passwords and failing to secure network wireless connections, put customers’ personal information at risk.

On January 13, 2011, the China Banking Regulatory Commission issued Measures for the Supervision and Administration of the Credit Card Businesses of Commercial Banks (the “Measures”), which took effect that same day. The Measures are reported to be the first comprehensive regulations relating to the credit card business in China, and include a number of provisions on the protection of personal information by commercial banks, as detailed below.

On February 10, 2011, the California Supreme Court ruled in Pineda v. Williams-Sonoma Stores, Inc. that ZIP codes are “personal identification information” under the state’s Song-Beverly Credit Card Act of 1971 (the “Credit Card Act”).  This finding effectively prohibits California businesses from requesting and recording cardholders’ ZIP codes during credit card transactions.

Under a Washington law effective July 1, 2010, certain entities involved in payment card transactions may be liable to financial institutions for costs associated with reissuing payment cards after security breaches.  Designed to encourage the reissuance of payment cards as a means of mitigating harm caused by security breaches, Washington H.B. 1149 applies to three types of entities:  businesses, processors and vendors.  Under the law, a business is an entity that “processes more than six million credit card and debit card transactions annually, and who provides, offers, or sells goods or services to . . . residents of Washington.” A processor is any entity, other than a business, that “directly processes or transmits [payment card] account information for or on behalf of another person as part of a payment processing service.” A vendor is any “entity that manufactures and sells software or equipment that is designed to process, transmit, or store [payment card] account information or that maintains account information that it does not own.”

On January 1, 2010, two important state data security and privacy laws took effect in Nevada and New Hampshire.  The laws create new obligations for most companies that do business in Nevada and for health care providers and business associates in New Hampshire.

The court in In re Heartland Payment Systems, Inc. Securities Litigation, Civ. No. 09-1043 (D. N.J. Dec. 12, 2009) recently dismissed a class action lawsuit brought by investors in Heartland, a processor of payment card transactions whose stock value dropped significantly after it suffered a data security breach in which hackers allegedly stole 130 million payment card numbers.  The plaintiffs argued that Heartland’s statements to the effect that it had adequate security systems and that it took the issue of computer network security very seriously were fraudulent because Heartland knew it had poor data security and failed to remedy critical problems soon enough to prevent the theft.

A lawsuit that will soon commence in Arizona has the potential to alter the data breach liability landscape by making data security auditors liable for data breaches experienced by the companies they audit.  The case, Merrick Bank Corp. v. Savvis Inc., has its origins in events that began in 2003, when Merrick Bank (“Merrick”) offered to hire CardSystems Solutions (“CardSystems”) to process credit card transactions for its merchant customers.  The offer was contingent upon CardSystems achieving certification under VISA’s Cardholder Information Security Program (“CISP”), which is the predecessor to the Payment Card Industry Data Security Standard (“PCI DSS”).  Savvis audited CardSystems in 2004 and found that it had “implemented sufficient security solutions” and followed “industry best practices.”  VISA certified CardSystems shortly after receiving Savvis’ audit report.  In 2005, CardSystems revealed that it had experienced an information security breach that compromised forty million payment cards.