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Category: Litigation

Judge Sides with Government over Google in the Latest Battle Rematch over the Territorial Reach of the SCA

Another federal judge has rejected the U.S. Court of Appeals for the Second Circuit’s interpretation of the Stored Communications Act (SCA), and has ordered Google to hand over customer email traffic—wherever located—to U.S. law enforcement.  More than a year ago, the Second Circuit held that Microsoft Corp. was not required to produce customer emails stored on foreign servers in response to an SCA warrant.  Since then, the Second Circuit’s ruling has been rejected by three different federal courts around the country.

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DFS Cyber Regulation Countdown: Who Should Certify Compliance?

Companies subject to New York’s Department of Financial Services (DFS) new cybersecurity regulation should be preparing to comply with the first round of requirements by the upcoming August 28th deadline: enacting a cybersecurity program and policies, implementing user access privileges, designating a Chief Information Security Officer (CISO), employing qualified personnel, and implementing an incident response plan.

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Follow the Money and Beware the Extra “L”: First Department Sustains Claims against Fund Administrator After Hackers Grab Millions

A legal feud is underway between the world’s biggest hedge fund administrator and a former client over an email scam that resulted in hackers stealing millions in client funds.  And not surprisingly, the time-honored tradition of finger pointing is on full display as each party accuses the other of employing sub-par internal controls and lackluster cybersecurity standards.  

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DFS Issues Additional Guidance for Cyber Regulation Compliance

New York’s Department of Financial Services (DFS) has issued additional guidance for compliance with the state’s sweeping cybersecurity regulation that went into effect earlier this year.  Companies covered by the regulation must comply with the first round of requirements by August 28th.

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When Health Data Goes Missing: Largest Reported Ransomware Attack

In the aftermath of two powerful global ransomware attacks, a Michigan-based medical equipment provider has disclosed that hackers “encrypted our data files” and accessed more than 500,000 patient records in what is believed to be the largest reported ransomware attack on health care information.

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11th Circuit Hears Oral Argument in LabMD Case

Yesterday morning, the United States Court of Appeals for the Eleventh Circuit, sitting in Miami, heard oral argument in the case of LabMD, Inc. v. Federal Trade Commission, No. 16-16270.

For purposes of this post, we presume readers are familiar with this case, which we’ve blogged about extensively since the Federal Trade Commission lodged an Administrative Complaint against LabMD back in 2013.  Briefly, the core question on appeal is whether the FTC overstepped its authority under Section 5(n) of the Federal Trade Commission Act (codified at 15 U.S.C. § 45(n)) when it initiated an enforcement action against LabMD, a Georgia medical testing lab, after certain patient data files were apparently misappropriated, but no patent data actually fell into the wrong hands, and no individual patient suffered any cognizable injury, such as identity theft.

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A question of harm: LabMD to face off with FTC at 11th Circuit

In a consequential test of the Federal Trade Commission’s authority as a data security regulator, the U.S. Court of Appeals for the Eleventh Circuit will hear argument tomorrow in a case that will determine whether the agency must show a concrete consumer injury as an element of an enforcement action, just as private plaintiffs have been required to do for years.

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NYS Cyber Regulation Countdown: Continuous Monitoring

In our series of posts leading up to the August 28th deadline for the first phase of requirements under New York’s cybersecurity regulation, the Patterson Belknap team looks at issues that institutions face as they implement the new rules.

In complying with the New York State Department of Financial Services (DFS) cybersecurity regulation, financial institutions have a choice.  They can either employ “continuous monitoring” or, instead, conduct annual “penetration testing” and bi-annual “vulnerability assessments.”

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DFS Cyber Compliance Nightmare?

New survey reports less than half of financial firms will meet deadline

A new survey by the Ponemon Institute reports that less than half of the financial institutions covered by New York’s sweeping new cybersecurity regulation say they will “likely” meet next February’s compliance deadline. And even more stunning is the fact that only 13% of those institutions surveyed reported “with certainty” that they would be in full compliance with the regulation by next year.

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NYS Cyber Regulation Countdown: “Risk Assessment” – Now or Later?

In our series of posts leading up to the August 28th deadline for the first phase of requirements under New York’s cybersecurity regulation, the Patterson Belknap team looks at issues that institutions face as they implement the new rules.

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Ninety Days and Counting: NY Cyber Regulation’s First Deadline

Faced with an approaching August 28th deadline, the more than 3,000 financial institutions that do business in New York should be knee-deep in implementing the first wave of requirements under the State’s sweeping and unprecedented cybersecurity regulation.

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The Computer Fraud and Abuse Act Will Need To Wait Another Day In New York’s Commercial Division

Justice Shirley Kornreich recently issued one of the few New York state court decisions  that address the Computer Fraud and Abuse Act (“CFAA”).  Spec Simple, Inc. v. Designer Pages Online LLC,  No. 651860/2015, 2017 BL 160865 (N.Y. Sup. Ct. May 10, 2017).  The CFAA criminalizes both accessing a computer without authorization and exceeding authorized access and thereby obtaining information from any protected computer.  Id. at *3 (citing 18 U.S.C. § 1030(a)(2)(C)). The CFAA also provides a civil cause of action to any person who suffers damage or loss because of a violation of the CFAA.  Id. at *4 (citing 18 U.S.C. § 1030(g)).  As discussed below, the decision provides a helpful look into the interpretation of CFAA claims in the future.

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Facebook Warrant Case: Stark Debate and a Divided Court

We previously posted about a case before the New York Court of Appeals that concerned whether Facebook has the legal standing to challenge search warrants seeking its users’ data.  In April, the court sided with the Manhattan District Attorney’s office and rejected Facebook’s challenge.  The three opinions by the judges—particularly the concurrence by Judge Jenny Rivera—provide insight into this evolving area of law.

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Digital Divide Deepens: Tech Community Backs Second Circuit in Clash with Magistrates over Reach of U.S. Warrants

The technology community took aim at a recent federal magistrate’s ruling that ordered Google Inc. to comply with search warrants seeking customer emails stored on servers abroad, calling the decision “an impermissible extraterritorial application of U.S. law.” In rejecting a recent federal appeals court decision in a similar case in favor of Microsoft Corp., U.S. Magistrate Thomas J. Reuter in Philadelphia ruled that transferring emails from a foreign server to the U.S. was not tantamount to a seizure beyond American borders. The technology companies urged the court to reject the “fiction that such a foreign search and seizure is a domestic act….”

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Privilege Waiver: Is Your File-Sharing Site a Public Park Bench?

While courts and the Federal Rules of Evidence take an increasingly pragmatic approach to the question of when inadvertent disclosure of privileged information results in waiver, a recent federal magistrate’s ruling serves as a potent warning that use of a file-sharing site – without sufficient safeguards – may constitute a waiver. Harleysville Insurance Co. v. Holding Funeral Home, Inc., No. 1:15-cv-00057 (W.D. Va. Feb. 9, 2017) is the first published decision to find that the use of a file-sharing site to exchange potentially privileged information constituted a waiver of the attorney-client privilege and work product protection—because the company failed to password protect its transmission.

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Does Facebook Have the Right to Challenge Search Warrants Seeking Facebook Users’ Data? New York’s Highest Court Hears Argument

Facebook is the latest social media giant to push back on law enforcement efforts to seek user information.  On Tuesday, the New York Court of Appeals heard oral argument in a case focusing on whether Facebook has the right—or legal standing—to challenge bulk search warrants issued by the Manhattan District Attorney’s office for its users' data.  The case is In re 381 Search Warrants Directed to Facebook, Inc. and Dated July 23, 2013.

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Third Circuit Finds FCRA Violation Alone Confers Standing for Data Breach Suit

The United States Court of Appeals for the Third Circuit recently ruled that a data breach class action may proceed on the basis of a Fair Credit Reporting Act (FCRA) violation alone, even where the putative class members do not allege that they were actually harmed by the breach.  The ruling, which both relies on and distinguishes the Supreme Court’s recent analysis of FCRA standing in Spokeo v. Robins, suggests that at least in the Third Circuit, “injury” from a data breach may be presumed from the fact of the breach itself.  This, in turn, could have the effect of expanding potential liability for any consumer-facing entity that suffers a breach.

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Second Circuit Court of Appeals Denies Rehearing in Microsoft Case

Back in December 2013, a U.S. magistrate issued a seemingly routine warrant in a narcotics case demanding that Microsoft turn over messages from a customer’s email account that resided on a server in Ireland.  That warrant, which issued under a 1986 law called the Stored Communications Act (“SCA”), 18 U.S.C. § 2703, is still being debated today.

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Keeping Section 5 Alive: The FTC Brings Suit Against D-Link

The U.S. Federal Trade Commission (“FTC”) has filed suit against Taiwan-based D-Link Corporation and D-Link Systems, Inc. (collectively, “D-Link”), manufacturers and sellers of home networking devices including routers, cameras, baby monitors, and video recorders.  The lawsuit claims that D-Link failed to take reasonable steps to protect its devices from known and foreseeable risks of unauthorized access.

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LabMD’s 11th Circuit FTC Appeal: The Opening Shot

Firing the opening salvo in its appeal of one of the most controversial data security decisions by the U.S. Federal Trade Commission in years, LabMD accused the agency of overstepping its authority and “destroy[ing] [the] small medical testing company” in the process.

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“Life is Short. Have an Affair.” And Then Settle With the FTC.

Yesterday, the Federal Trade Commission (“FTC”) announced a settlement with the owners of “dating site” AshleyMadison.com, arising from a July 2015 data breach that received broad media coverage.  According to a proposed order filed in the District Court for the District of Columbia, the operators of the website are also simultaneously settling with thirteen states—including New York—and the District of Columbia.

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Wake-Up Call: Law Firms in the Cybersecurity Crosshairs

Last week marked the first time a U.S. law firm was publicly named in a class action data security lawsuit.  Originally filed in April 2016, the class action complaint in Shore v. Johnson & Bell, Ltd., 16-cv-4363 (N.D. Ill.), was unsealed last week after months of back-and-forth over whether the alleged security flaws had been patched.  The complaint accuses Johnson & Bell, a mid-sized Chicago firm, of “systematically exposing confidential client information and storing client data without adequate security.”  The lawsuit makes no claim that any client information has been stolen or misused.  Even so, the filing of this complaint amplifies the risks already facing law firms – including reputational – at a time when data security is a top concern for law firms and their clients.

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Hints of a Narrowing of the FTC’s Section 5 Authority Under a Trump Presidency

The transition of power from President Barack Obama to President-Elect Donald Trump is underway.  Although President-Elect Trump did not lay out specific policy prescriptions about data privacy or consumer protection during his candidacy, his recent choice of Dr. Joshua D. Wright to lead transition efforts at the Federal Trade Commission provides some hints as to the direction the agency may take under a Trump administration.

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When Using a Computer Becomes a Crime, Part Two: ACLU, Facebook Weigh In on Ninth Circuit’s Answer

The Electronic Frontier Foundation (“EFF”) and the American Civil Liberties Union (“ACLU”) have weighed in on Facebook’s high-profile dispute with a social media aggregation company over whether it had unlawfully accessed Facebook’s computers.  The EFF and ACLU warned the Ninth Circuit that the panel’s ruling for Facebook risks chilling important investigations and makes “potential criminals out of millions of ordinary Americans on the basis of innocuous online behavior.”  The case is Facebook, Inc. v. Power Ventures, Inc., No. 13-17102. 

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LabMD Scores Early Win in FTC Appeal

The fight between the Federal Trade Commission and LabMD, the defunct medical testing lab, entered a new chapter late yesterday.  In a 13-page ruling, the U.S. Court of Appeals for the Eleventh Circuit said that LabMD’s appeal presented “a serious legal question” as to the Commission’s interpretation of Section 5 of the FTC Act and that any enforcement of the agency’s order should be stayed until the appellate process had run its course.

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Galaria v. Nationwide: Data Breach Plaintiffs Standing Strong in the Sixth

This week, in the first post-Spokeo circuit court decision to address standing in a data breach class action, the Sixth Circuit joined the Seventh Circuit in holding that plaintiffs whose sensitive personal information has been obtained by hackers have Article III standing to sue based on the risk of future fraud and identity theft.

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Banner Health Suits Raise Significant Questions for Data Breach Class Actions

Banner Health recently announced that hackers may have gained “unauthorized access to patient information” and “payment card data” from approximately 3.7 million patients, health plan members, food and beverage customers, and physicians.  The breach has been reported as the largest for a hospital in 2016. 

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Post-Spokeo Standing: An Evolving Landscape

Several recent federal court decisions have added guidance on the still-unsettled question of when a plaintiff has Article III standing to sue based on a data breach or other data security or privacy event.  These cases—Attias v. CareFirst, Inc. (D.D.C.), Wood v. J. Choo USA, Inc. (S.D. Fla.), and Guarisma v. Microsoft (S.D. Fla.)—offer somewhat mixed guidance for defendants in class action privacy-related lawsuits looking to use a standing challenge as a quick escape.

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When Is Using a Computer a Crime? Rehearing Sought on Ninth Circuit’s “Distressingly Unclear” Answer

Facebook recently won a landmark victory in the Ninth Circuit against a company that accessed Facebook’s computers to help users manage their social network accounts.  Now the company, Power Ventures, Inc., says that the Ninth Circuit’s decision risks creating “widespread confusion” about when it is a crime to use a computer to access a website.

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FTC Slaps Down ALJ’s Data Security Ruling in LabMD, Sets Broad Mandate for Protection of “Sensitive” Consumer Data

In a sweeping statement of its data security expectations for organizations that maintain consumer information, the Federal Trade Commission on Friday found that LabMD, the defunct medical testing lab, failed to employ adequate data security safeguards in violation of Section 5 of the FTC Act, even though there was no indication that any information had been misused or compromised.

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Target Corp. Shareholders Walk Away from Derivative Lawsuits

The leadership team at Target Corp. has one less legal claim to worry about today from the company’s headline-making 2013 data breach.  And in an unusual twist, the shareholders who filed a series of derivative actions against Target’s directors and officers have waived the symbolic “white flag” by agreeing that the cases could be dropped so long as they were able to come back to Court to recover their legal fees.

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FTC Delays Ruling in LabMD Appeal

The Federal Trade Commission has decided to put off until late July a decision about whether to overturn a ruling by the agency’s chief administrative law judge in the closely watched data security action against LabMD, the Atlanta-based medical detection firm.  In a one-paragraph order issued late yesterday, the Commission extended the deadline for decision until July 28th “in order to give full consideration to the issues presented by the appeal in this proceeding.”

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SEC Chair Warns: Cyber Biggest Threat to Global Financial System

The chair of the U.S. Securities and Exchange Commission warned that cybersecurity is the biggest risk facing our financial system today.  At an industry conference yesterday, SEC Chair Mary Jo White said that major exchanges, clearing houses and other players in the financial system did not have cyber defenses in place that aligned with the risks they faced.

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The Supreme Court Sends Spokeo Back

Today, the U.S. Supreme Court decided one of the Term’s most closely watched cases: Spokeo, Inc. v. Robins.  The 6-2 decision, while far from sweeping, creates a hurdle for plaintiffs in “no-injury” class actions.  

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LabMD’s Waiting Game: Lingering Questions over FTC’s Authority in Data Security Matters

A contentious legal battle over data security between the Federal Trade Commission and LabMD, a small medical testing lab, is chronicled in the latest edition of Bloomberg Businessweek.  Dune Lawrence’s report raises lingering questions about the FTC’s prosecution of a now-defunct company, tampered evidence and regulatory overreach.

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