LUCY H. KOH, United States District Judge.
In this consolidated litigation, Plaintiffs Christian Duke ("Duke"), Joseph Kar ("Kar"), Christina Halpain ("Halpain"), Jacob McHenry ("McHenry"), Anne McGlynn ("McGlynn"), and Marcel Page ("Page"), individually and on behalf of those similarly situated (collectively, "Plaintiffs") bring claims against Defendant Adobe Systems, Inc. ("Adobe") arising out of an intrusion into Adobe's computer network in 2013 and the resulting data breach. Consol. Compl. ("Compl.") ECF No. 39. Pending before the Court is Adobe's Motion to Dismiss, in which Adobe seeks dismissal of all of Plaintiffs' claims. ("Mot.") ECF No. 45. Plaintiffs have filed an Opposition, ("Opp'n") ECF No. 47, and Adobe has filed a Reply, ("Reply") ECF No. 50. Having considered the submissions of the parties and the relevant law, the Court hereby GRANTS IN PART and DENIES IN PART Adobe's Motion to Dismiss.
Except where indicated, the facts in this section are taken from Plaintiffs' Complaint and accepted as true for the purposes of this Motion.
Adobe is a multinational software company that sells and licenses printing, publishing, multimedia, and graphics software. Compl. ¶ 17. Adobe sells a wide range of products, including Photoshop (a widely-used digital imaging program) and ColdFusion (used by web developers to build websites and Internet applications). Id. ¶ 19. Adobe's products and services are available in two forms. Some Adobe software, such as ColdFusion, is sold through licenses, where customers pay a single licensing fee to use the software. Id. Other Adobe products are available through Adobe's subscription-based "Creative Cloud," where customers pay a monthly
Adobe collects a variety of customer information. Customers of licensed-based products must register their products, which requires customers to provide Adobe with their e-mail addresses and create a username and password for Adobe's website. Id. Some of these customers purchased their licenses online from Adobe directly, and thus also provided Adobe with their credit card numbers and expiration dates, as well as other billing information. E.g. id. ¶¶ 19, 78, 96. Creative Cloud customers are required to keep an active credit card on file with Adobe, which is charged automatically according to the customer's subscription plan. Id. ¶ 19. In addition, some Creative Cloud customers store their files and work products in Adobe's "cloud." E.g., id. ¶ 84. As a result of the popularity of Adobe's products, Adobe has collected personal information in the form of names, e-mail and mailing addresses, telephone numbers, passwords, credit card numbers and expiration dates from millions of customers. Id. ¶¶ 22, 50-55.
All customers of Adobe products, including Creative Cloud subscribers, are required to accept Adobe's End-User License Agreements ("EULA") or General Terms of Use. Id. ¶ 29. Both incorporate Adobe's Privacy Policy, which provides in relevant part: "[Adobe] provide[s] reasonable administrative, technical, and physical security controls to protect your information. However, despite our efforts, no security controls are 100% effective and Adobe cannot ensure or warrant the security of your personal information." ("Agreement") ECF No. 46-2 at 4. Adobe's Safe Harbor Privacy Policy, which supplements Adobe's Privacy Policy, similarly provides that "Adobe ... uses reasonable physical, electronic, and administrative safeguards to protect your personal information from loss; misuse; or unauthorized access, disclosure, alteration, or destruction." Compl. ¶ 32. Adobe makes similar representations regarding its security practices on its websites. Id. ¶¶ 33-39.
In July 2013, hackers gained unauthorized access to Adobe's servers. Id. ¶ 48. The hackers spent several weeks inside Adobe's network without being detected. Id. By August 2013, the hackers reached the databases containing customers' personal information, as well as the source code repositories for Adobe products. Id. The hackers then spent up to several weeks removing customer data and Adobe source code from Adobe's network, all while remaining undetected. Id. The data breach did not come to light until September, when independent security researchers discovered stolen Adobe source code on the Internet. Id. ¶ 49. Adobe announced the data breach on October 3, 2013. Id. ¶ 50. Adobe announced that the hackers accessed the personal information of at least 38 million customers, including names, login IDs, passwords, credit and debit card numbers, expiration dates, and mailing and e-mail addresses. Id. ¶¶ 50-52. Adobe confirmed that the hackers copied the source code for a number of its products, including ColdFusion. Id. ¶ 53. Adobe subsequently disclosed that the hackers were able to use Adobe's systems to decrypt customers' credit card numbers, which had been stored in an encrypted form. Id. ¶ 57. The Court will refer to this sequence of events as the "2013 data breach."
Following the 2013 data breach, researchers concluded that Adobe's security practices were deeply flawed and did not conform to industry standards. Id. ¶ 59. For example, though customers' passwords
Plaintiffs are customers of Adobe licensed products or Creative Cloud subscribers who provided Adobe with their personal information. Plaintiffs Kar and Page purchased licensed products directly from Adobe and provided Adobe with their names, email addresses, credit card numbers, other billing information, and other personal information. Id. ¶¶ 77-78, 95-96. Plaintiff McHenry purchased an Adobe licensed product, and provided Adobe with a username and password. Id. ¶¶ 98-99. Plaintiffs Duke, Halpain, and McGlynn subscribed to Adobe's products, and provided Adobe with their names, email addresses, credit card numbers, other billing information, and other personal information. Id. ¶¶ 74-75, 83-84, 90. Plaintiffs Duke, Kar, Halpain, and McGlynn are California citizens and residents. Id. ¶¶ 10-12, 14. Adobe informed all Plaintiffs that their personal information had been compromised as a result of the 2013 data breach. Id. ¶¶ 76, 80, 85, 92, 97, 100. Following the 2013 data breach, Plaintiffs Kar and Halpain purchased additional credit monitoring services. Id. ¶¶ 81, 86.
The seven cases underlying this consolidated action were filed in this Court between November 2013 and January 2014. See ECF No. 1; Case No. 13-CV-5611, ECF No. 1; Case No. 13-CV-5596, ECF No. 1; Case No. 13-CV-5930, ECF No. 1; Case No. 14-CV-14, ECF No. 1; Case No. 14-CV-30, ECF No. 1; Case No. 14-CV-157, ECF No. 1. The Court related the individual cases in December 2013 and January 2014, ECF Nos. 19, 22, 26,
A defendant may move to dismiss an action for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). A motion to dismiss for lack of subject matter jurisdiction will be granted if the complaint on its face fails to allege facts sufficient to establish subject matter jurisdiction. See Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n. 2 (9th Cir.2003). If the plaintiff lacks standing under Article III of the U.S. Constitution, then the court lacks subject matter jurisdiction, and the case must be dismissed. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101-02, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). In considering a Rule 12(b)(1) motion, the Court "is not restricted to the face of the pleadings, but may review any evidence, such as affidavits and testimony, to resolve factual disputes concerning the existence of jurisdiction." McCarthy v. United States, 850 F.2d 558, 560 (9th Cir.1988). Once a party has moved to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), the opposing party bears the burden of establishing the court's jurisdiction, see Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010), by putting forth "the manner and degree of evidence required" by whatever stage of the litigation the case has reached, Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992); see also Barnum Timber Co. v. Envtl. Prot. Agency, 633 F.3d 894, 899 (9th Cir.2011) (at the motion to dismiss stage, Article III standing is adequately demonstrated through allegations of "specific facts plausibly explaining" why the standing requirements are met).
Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a complaint to include "a short and plain statement of the claim showing that the pleader is entitled to relief." A complaint that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). The Supreme Court has held that Rule 8(a) requires a plaintiff to plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court
However, the Court need not accept as true allegations contradicted by judicially noticeable facts, Shwarz v. United States, 234 F.3d 428, 435 (9th Cir.2000), and the "[C]ourt may look beyond the plaintiff's complaint to matters of public record" without converting the Rule 12(b)(6) motion into one for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n. 1 (9th Cir.1995). Nor is the Court required to "`assume the truth of legal conclusions merely because they are cast in the form of factual allegations.'" Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir.2011) (per curiam) (quoting W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.1981)). Mere "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004); accord Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Furthermore, plaintiffs may plead themselves out of court if they "plead facts which establish that [they] cannot prevail on [their] ... claim." Weisbuch v. Cnty. of L.A., 119 F.3d 778, 783 n. 1 (9th Cir.1997) (internal quotation marks and citation omitted).
Claims sounding in fraud or mistake are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which requires that a plaintiff alleging fraud "must state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b); see Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir.2009). To satisfy Rule 9(b)'s heightened standard, the allegations must be "specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir.1985). Thus, claims sounding in fraud must allege "an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007) (per curiam) (internal quotation marks omitted). "The plaintiff must set forth what is false or misleading about a statement, and why it is false." In re Glenfed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.1994) (en banc), superseded by statute on other grounds as stated in Ronconi v. Larkin, 253 F.3d 423, 429 n. 6 (9th Cir.2001).
If the Court determines that the complaint should be dismissed, it must then decide whether to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend "should be freely granted when justice so requires," bearing in mind that "the underlying purpose of Rule 15 ... [is] to facilitate decision on the merits, rather than on the pleadings or technicalities." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir.2000) (en banc) (internal quotation marks omitted). Nonetheless, a court "may exercise its discretion to deny leave to amend due
Plaintiffs assert four causes of action in their Complaint. Adobe seeks dismissal of all four claims. The Court will address each claim and Adobe's corresponding objections in turn.
Plaintiffs' first cause of action is for injunctive relief on behalf of the California Plaintiffs for violations of Sections 1798.81.5 and 1798.82 of the California Civil Code ("CRA").
Cal. Civ. Code § 1798.81.5(b). Section 1798.82, for its part, requires businesses to "disclose any breach of the security of the system following discovery or notification of the breach ... in the most expedient time possible and without unreasonable delay." Cal. Civ. Code § 1798.82(a). Plaintiffs allege that Adobe did not and does not maintain "reasonable security practices" to protect customer data, in violation of Section 1798.81.5 of the CRA, and did not promptly notify customers following the 2013 data breach, in violation of Section 1798.82 of the CRA. Compl. ¶¶ 112-113.
Plaintiffs request injunctive relief pursuant to Section 1798.84(e) of the CRA, which provides that "[a]ny business that violates, proposes to violate, or has violated this title may be enjoined." Plaintiffs also base their request for relief on the "unlawful" prong of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq., which allows plaintiffs to "borrow" violations of other laws and treat them as unlawful competition that is independently actionable. Cel-Tech Commcn's, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999).
Adobe argues that Plaintiffs do not allege injury-in-fact resulting from Adobe's alleged violation of the CRA and thus do not have Article III standing to bring their CRA claim. Mot. at 6-7. For the same reasons, Adobe contends that Plaintiffs do not have statutory standing under Section 1798.84(e), which also requires a showing of injury. Id. As a result, Adobe contends that Plaintiffs' CRA claim must be dismissed for lack of jurisdiction. The Court addresses both contentions in turn,
To have Article III standing, a plaintiff must plead and prove that she has suffered sufficient injury to satisfy the "case or controversy" requirement of Article III of the United States Constitution. See Clapper v. Amnesty Int'l USA, ___ U.S. ___, 133 S.Ct. 1138, 1146, 185 L.Ed.2d 264 (2013) ("`One element of the case-or-controversy requirement' is that plaintiffs `must establish that they have standing to sue.'" (quoting Raines v. Byrd, 521 U.S. 811, 818, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997))). To satisfy Article III standing, a plaintiff must therefore allege: (1) injury-in-fact that is concrete and particularized, as well as actual or imminent; (2) that the injury is fairly traceable to the challenged action of the defendant; and (3) that the injury is redressable by a favorable ruling. Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 149, 130 S.Ct. 2743, 177 L.Ed.2d 461 (2010); Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000). "The party invoking federal jurisdiction bears the burden of establishing these elements ... with the manner and degree of evidence required at the successive stages of the litigation." Lujan, 504 U.S. at 561, 112 S.Ct. 2130.
In a class action, named plaintiffs representing a class "must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent." Warth v. Seldin, 422 U.S. 490, 502, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). "[I]f none of the named plaintiffs purporting to represent a class establishes the requisite of a case or controversy with the defendants, none may seek relief on behalf of himself or any other member of the class." O'Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974).
In the instant case, Plaintiffs allege that they have all suffered at least one of three types of cognizable injuries-in-fact: (1) increased risk of future harm; (2) cost to mitigate the risk of future harm; and/or (3) loss of the value of their Adobe products. Opp'n at 7-11. The Court begins by assessing the adequacy Plaintiffs' alleged injuries. The Court will then address Adobe's argument that even if Plaintiffs have Article III standing to bring a claim based on Adobe's alleged violation of Section 1798.81.5 (the "reasonable" security measures provision), Plaintiffs do not have standing to bring a claim based on Adobe's alleged violation of Section 1798.82 (the notification provision), because Plaintiffs do not allege that they suffered any particular injury stemming from Adobe's failure to reasonably notify Plaintiffs of the 2013 data breach. Mot. at 7.
Plaintiffs claim that they are all at increased risk of future harm as a result of the 2013 data breach. Opp'n at 7. Adobe counters that such "increased risk" is not a cognizable injury for Article III standing purposes. Mot. at 10. The Ninth Circuit addressed Article III standing in the context of stolen personal information in Krottner v. Starbucks Corp., 628 F.3d 1139 (9th Cir.2010). In Krottner, a thief stole a laptop from Starbucks containing the unencrypted names, addresses, and social security numbers of roughly 97,000 Starbucks employees. Id. at 1140. Some of the affected employees subsequently sued Starbucks for negligence and breach of implied contract. Id. Starbucks argued that the employees did not have standing because there was no indication that any of the employees' personal information had been misused or that the employees had
Adobe does not dispute that Krottner is directly on point. See Mot. at 11; Reply at 3. However, Adobe contends that subsequent Supreme Court authority forecloses the approach the Ninth Circuit took to standing in Krottner. Reply at 3. Specifically, Adobe claims that the Supreme Court's decision in Clapper v. Amnesty International USA expressly rejected "[a]llegations of possible future injury" as a basis for Article III standing, requiring instead that a "threatened injury [] be certainly impending to constitute injury in fact." Mot. at 10 (citing Clapper, 133 S.Ct. at 1147). Adobe argues that following Clapper district courts in data breach cases regularly conclude that increased risk of future harm is insufficient to confer Article III standing under the "certainly impending" standard. Id. (citing In re Sci. Applications Int'l Corp. Backup Tape Data Theft Litig. ("SAIC"), 45 F.Supp.3d 14, 2014 WL 1858458 (D.D.C. May 9, 2014); Strautins v. Trustwave Holdings, Inc., 27 F.Supp.3d 871, 2014 WL 960816 (N.D.Ill. Mar. 12, 2014); Galaria v. Nationwide Mut. Ins. Co., 998 F.Supp.2d 646 (S.D.Ohio 2014); Polanco v. Omnicell, Inc., 988 F.Supp.2d 451 (D.N.J.2013); In re Barnes & Noble Pin Pad Litig., No. 12-8617, 2013 WL 4759588 (N.D.Ill. Sep. 3, 2013); Yunker v. Pandora Media, Inc., No. 11-3113, 2013 WL 1282980 (N.D.Cal. Mar. 26, 2013)). Adobe claims that the only case to hold otherwise, In re Sony Gaming Networks & Customer Data Security Breach Litigation, 996 F.Supp.2d 942 (S.D.Cal.2014), has been "relegated to a `but see' reference." Mot. at 11 (citing SAIC, 45 F.Supp.3d at 28, 2014 WL 1858458, at *8). Adobe encourages this Court to conclude that Clapper implicitly overruled Krottner and to join the district courts that have rejected the "increased risk of harm" theory of standing in Clapper's wake. Id. at 10-11. For the following reasons, the Court declines to do so.
Clapper addressed a challenge to Section 702 of the Foreign Intelligence Surveillance Act of 1978 ("FISA"), 50 U.S.C. § 1881a. 133 S.Ct. at 1142. Respondents were U.S.-based attorneys, human rights, labor, legal, and media organizations who alleged that their work required them to communicate with individuals outside the United States who were likely to be targets of surveillance under Section 702. Id. at 1145. The respondents asserted injury based on "an objectively reasonable likelihood that their communications [would] be acquired [under FISA] at some point in the future." Id. at 1146. As an initial matter, the Supreme Court held that the "objectively reasonable likelihood" standard was inconsistent with precedent requiring that "threatened injury must be certainly impending to constitute injury in fact." Id. at 1147 (emphasis added) (quoting Whitmore v. Arkansas, 495 U.S. 149, 158, 110 S.Ct. 1717, 109 L.Ed.2d 135 (1990)). The Supreme Court emphasized that "allegations of possible future injury
As the Supreme Court noted, the respondents did not allege that any of their communications had actually been intercepted, or even that the Government sought to target them directly. Id. at 1148. Rather, the respondents' argument rested on the "highly speculative fear" that:
Id. The Supreme Court held that this "highly attenuated" chain of possibilities did not result in a "certainly impending" injury. Id. The Court observed that the first three steps of the chain depended on the independent choices of the Government and the Foreign Intelligence Surveillance Court, yet the respondents could only speculate as to what decision those third parties would take at each step. Id. at 1149-50 ("[W]e have been reluctant to endorse standing theories that require guesswork as to how independent decisionmakers will exercise their judgment...."). Moreover, respondents could not show with any certainty that their communications with the foreign persons allegedly under surveillance would be intercepted. Id. As a result, the overall chain of inferences was "too speculative" to constitute a cognizable injury. Id. at 1143.
The Supreme Court acknowledged that its precedents "do not uniformly require plaintiffs to demonstrate that it is literally certain that the harms they identify will come about" in order to have standing. Id. at 1150 n. 5 (emphasis added). Rather, in some cases, the Supreme Court has found standing "based on a `substantial risk' that the harm will occur, which may prompt plaintiffs to reasonably incur costs to mitigate or avoid that harm." Id. (citing Monsanto, 561 U.S. at 153-54, 130 S.Ct. 2743; Pennell v. City of San Jose, 485 U.S. 1, 8, 108 S.Ct. 849, 99 L.Ed.2d 1 (1988); Blum v. Yaretsky, 457 U.S. 991, 1000-01, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982); Babbitt v. Farm Workers, 442 U.S. 289, 298, 99 S.Ct. 2301, 60 L.Ed.2d 895 (1979)). The Supreme Court declined to overrule that line of cases. However, the Court concluded in Clapper that "to the extent that the `substantial risk' standard is relevant and is distinct from the `clearly impending' requirement, respondents fall short of even that standard, in light of the attenuated chain of inferences necessary to find harm here." Id.
Clapper did not change the law governing Article III standing. The Supreme Court did not overrule any precedent, nor did it reformulate the familiar standing requirements of injury-in-fact, causation, and redressability.
"[D]istrict courts should consider themselves bound by [] intervening higher authority and reject the prior opinion of [the Ninth Circuit] as having been effectively overruled" only when the intervening higher authority is "clearly irreconcilable with [the] prior circuit authority." Miller v. Gammie, 335 F.3d 889, 900 (9th Cir.2003) (en banc). The Court does not find that Krottner and Clapper are clearly irreconcilable. Krottner did use somewhat different phrases to describe the degree of imminence a plaintiff must allege in order to have standing based on a threat of injury, i.e., "immediate[][] danger of sustaining some direct injury," and a "credible threat of real and immediate harm." 628 F.3d at 1142-43. On the other hand, Clapper described the harm as "certainly impending." 133 S.Ct. at 1147. However, this difference in wording is not substantial. At the least, the Court finds that Krottner's phrasing is closer to Clapper's "certainly impending" language than it is to the Second Circuit's "objective reasonable likelihood" standard that the Supreme Court reversed in Clapper. Given that Krottner described the imminence standard in terms similar to those used in Clapper, and in light of the fact that nothing in Clapper reveals an intent to alter established standing principles, the Court cannot conclude that Krottner has been effectively overruled.
In any event, even if Krottner is no longer good law, the threatened harm alleged here is sufficiently concrete and imminent to satisfy Clapper. Unlike in Clapper, where respondents' claim that they would suffer future harm rested on a chain of events that was both "highly attenuated" and "highly speculative," 133 S.Ct. at 1148, the risk that Plaintiffs' personal data will be misused by the hackers who breached Adobe's network is immediate and very real. Plaintiffs allege that the hackers deliberately targeted Adobe's servers and spent several weeks collecting names, usernames, passwords, email addresses, phone numbers, mailing addresses, and credit card numbers and expiration dates. Compl. ¶¶ 48, 50. Plaintiffs' personal information was among the information taken during the breach. Id. ¶¶ 76, 80, 85, 92, 97, 100. Thus, in contrast to Clapper, where there was no evidence that
Neither is there any need to speculate as to whether the hackers intend to misuse the personal information stolen in the 2013 data breach or whether they will be able to do so. Not only did the hackers deliberately target Adobe's servers, but Plaintiffs allege that the hackers used Adobe's own systems to decrypt customer credit card numbers. Compl. ¶ 57. Some of the stolen data has already surfaced on the Internet, and other hackers have allegedly misused it to discover vulnerabilities in Adobe's products. Id. ¶¶ 49, 70. Given this, the danger that Plaintiffs' stolen data will be subject to misuse can plausibly be described as "certainly impending." Indeed, the threatened injury here could be more imminent only if Plaintiffs could allege that their stolen personal information had already been misused. However, to require Plaintiffs to wait until they actually suffer identity theft or credit card fraud in order to have standing would run counter to the well-established principle that harm need not have already occurred or be "literally certain" in order to constitute injury-in-fact.
The cases Adobe cites in which district courts have relied on Clapper to dismiss data breach cases on standing grounds are factually distinct from the present case. In SAIC, the case on which Adobe most heavily relies, a thief broke into a car in San Antonio, Texas and stole the car's GPS and stereo, as well as encrypted backup data tapes containing personal medical information for over four million U.S. military members and their families. 45 F.Supp.3d at 20-21, 2014 WL 1858458, at *2. As the SAIC court found, the thief would need to have recognized the data tapes for what they were, obtained specialized equipment to read the tapes, broken the encryption protecting the data on the tapes, and then obtained specialized software to read the data, all before being in any position to misuse the data. Id. at 24-25, at *6. Such a chain of possibilities, the SAIC court held, was as attenuated as the chain the Supreme Court rejected in Clapper, especially given the more likely possibility that the thief had simply sold the GPS and stereo and discarded the data
Adobe's other authorities are similarly distinct. The thief in Polanco also stole a laptop out of a car. 988 F.Supp.2d at 456. Again, there was no allegation that the thief targeted the laptop for the data contained therein, and the plaintiff "essentially concede[d]" that she had not alleged "any misuse of her [personal information] or [] that she [wa]s now at an increased risk for the misuse of her information in the future based on the theft of the laptop." Id. at 467. In both Strautins and Barnes & Noble, it was unclear if the plaintiffs' information had been taken at all. 27 F.Supp.3d at 879-81, 2014 WL 960816, at *6-7; 2013 WL 4759588, at *4. Finally, in Yunker, the plaintiff did not allege that he had provided any sensitive information (such as a credit card number or a social security number) or that anyone had breached the defendant's servers. 2013 WL 1282980, at *5.
The case with facts closest to those at issue here is Galaria. In that case, hackers obtained a variety of personal information, though not credit card information, from the servers of an insurance company. Galaria, 998 F.Supp.2d at 649-50, 2014 WL 689703, at *1. The court declined to find standing based on increased risk of future harm, reasoning that whether plaintiffs would be harmed depended on the decision of the unknown hackers, who may or may not attempt to misuse the stolen information. Id. at *6. The Court finds this reasoning unpersuasive — after all, why would hackers target and steal personal customer data if not to misuse it? — and declines to follow it. Regardless, Galaria's reasoning lacks force here, where Plaintiffs allege that some of the stolen data has already been misused. See Compl. ¶¶ 49, 70.
In sum, the Court finds that Plaintiffs' allegations of a concrete and imminent threat of future harm suffice to establish Article III injury-in-fact at the pleadings stage under both Krottner and Clapper.
In addition, Plaintiffs allege that Plaintiffs Halpain and Kar have standing based on the reasonable costs they incurred to mitigate the increased risk of harm resulting from the 2013 data breach. Opp'n at 10; see Compl. ¶¶ 80-81, 86-87 (alleging that Halpain and Kar paid for data monitoring services). The Supreme Court held in Clapper that plaintiffs "cannot manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending." 133 S.Ct. at 1151. In so holding, the Supreme Court rejected the Clapper respondents' argument that they had standing because they had taken on costly and burdensome measures to protect the confidentiality of their communications. Id. Even where the fear of harm was not "fanciful, paranoid, or otherwise unreasonable," the Supreme Court noted, plaintiffs cannot secure a lower standard for standing "simply by making an expenditure based on [that] fear." Id.
As this last quote indicates, the Supreme Court's primary concern was that the Article III standing standard would be "water[ed] down" if a plaintiff who otherwise lacked standing could manufacture an injury-in-fact "for the price of a plane ticket." Id. (internal quotation marks omitted); accord SAIC, 45 F.Supp.3d at 26, 2014 WL 1858458, at *7 ("Put another way, the [Supreme] Court
For the foregoing reasons, the Court finds that Plaintiffs have plausibly alleged that the substantial risk of harm Plaintiffs face following the 2013 data breach constitutes a cognizable injury-in-fact. The costs Plaintiffs Halpain and Kar incurred to mitigate this risk of harm constitute an additional cognizable injury. The Court further finds that Plaintiffs plausibly allege both that these injuries are "fairly traceable" to Adobe's alleged failure to maintain "reasonable" security measures in violation of Section 1798.81.5 and that the relief sought would redress these injuries. The Court therefore concludes that Plaintiffs have adequately pleaded that they have Article III standing to bring a CRA claim for violations of Section 1798.81.5.
Adobe argues that even if Plaintiffs have adequately alleged injury-in-fact stemming from Adobe's alleged failure to implement reasonable security measures, Plaintiffs have not alleged any injury traceable to Adobe's alleged failure to reasonably notify customers of the 2013 data breach in violation of Section 1798.82, because Plaintiffs do not allege that they suffered any incremental harm as a result of the delay. Mot. at 7. The Court agrees that Plaintiffs do not allege any harm resulting from the delay in their Complaint, and Plaintiffs do not address this argument in their Opposition except to argue that they have statutory (as opposed to Article III) standing to bring a Section 1798.82 claim. See Opp'n at 11.
The CRA also contains a statutory standing requirement. Section 1798.84, the remedies provision of the CRA, provides that "[a]ny customer injured by a violation of this title may institute a civil action to recover damages," Cal. Civ. Code § 1798.84(b), and the California Court of Appeal has held that this injury requirement applies "regardless of the remedies [a plaintiff] seek[s]," Boorstein v. CBS Interactive, Inc., 222 Cal.App.4th 456, 466-67, 165 Cal.Rptr.3d 669 (2013); accord Murray v. Time Inc., 554 Fed.Appx. 654, 655 (9th Cir.2014). Therefore, where a plaintiff fails to allege a cognizable injury, the plaintiff "lacks statutory standing" to bring a claim under Section 1798.84, "regardless of whether [the] allegations are sufficient to state a violation of the [statute]." Boorstein, 222 Cal.App.4th at 467, 165 Cal.Rptr.3d 669 (internal quotation marks omitted).
Although Section 1798.84 does not define what qualifies as an injury under the statute, other courts in the Ninth Circuit have found that an injury that satisfies Article III's injury-in-fact standard suffices to establish statutory injury under the CRA. See, e.g., Miller v. Hearst Commc'ns, Inc., No. 12-733, 2012 WL 3205241, at *6 (C.D.Cal. Aug. 3, 2012); Boorstein v. Men's Journal LLC, No 12-771, 2012 WL 2152815, at *3-4 (C.D. Cal. June 14, 2012). As Adobe does not contend, and as the Court has no reason to believe, that the CRA's statutory standing requirements are more stringent than Article III's, the Court finds that Plaintiffs' allegations of injury-in-fact satisfy the CRA's statutory standing requirement for the same reasons these allegations satisfy Article III. See supra Part III.A.1.
In summary, the Court DENIES Adobe's Motion to Dismiss Plaintiffs' CRA claim for violations of Section 1798.81.5.
Plaintiffs' second cause of action is for declaratory relief on behalf of all Plaintiffs. Compl. ¶¶ 118-124. As a preliminary matter, the parties disagree over whether the federal Declaratory Judgment Act, 28 U.S.C. § 2201, applies, as Adobe contends, or if the California Declaratory Relief Act, Cal. Civ. Proc. Code § 1060, applies, as Plaintiffs contend. Compare Reply at 5 n.4, with Opp'n at 14.
The Court finds that the federal Declaratory Judgment Act governs in this case. Although district courts in the Ninth Circuit have at times applied the California Declaratory Relief Act when sitting in diversity, see Valley Forge Ins. Co. v. APL Co. Pte. Ltd., No. 09-9323, 2010 WL 960341, at *4 n. 5 (C.D.Cal. Mar. 16, 2010) (citing cases), other district courts apply the federal Act, see, e.g., DeFeo v. Procter & Gamble Co., 831 F.Supp. 776, 779 (N.D.Cal.1993) ("The propriety of granting declaratory relief in federal court is a procedural matter.... Therefore, the Declaratory Judgment Act is implicated even in diversity cases ...." (citations omitted)). For its part, the Ninth Circuit has indicated, although not explicitly held, that the federal Declaratory Judgment Act should apply. In Golden Eagle Insurance Co. v. Travelers Cos., 103 F.3d 750, 753 (9th Cir.1996), overruled on other grounds by Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (1998) (en banc), the Ninth Circuit stated that although "[t]he complaint [plaintiff] filed in state court was for declaratory relief under California's declaratory relief statute," "[w]hen [defendant] removed the case to federal court, based on diversity of citizenship, the claim remained one for declaratory relief, but the question whether to exercise federal jurisdiction to resolve the controversy became a procedural question of federal law." Finally, the U.S. Supreme Court has emphasized the procedural nature of the Declaratory Judgment Act, which further supports the conclusion that the federal Act applies. See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 94 L.Ed. 1194 (1950) ("`[T]he operation of the Declaratory Judgment Act is procedural only.'" (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617 (1937))). The Court will therefore consider Plaintiffs' declaratory relief claim under the federal Declaratory Judgment Act. In any event, as Plaintiffs acknowledge, whether the state or federal statute applies makes little difference as a practical matter, as the two statutes are broadly equivalent.
The federal Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). To fall within the Act's ambit, the "case of actual
Adobe moves to dismiss Plaintiff's declaratory relief claim on three grounds. First, Adobe asserts that Plaintiffs have not suffered an injury-in-fact and therefore lack standing. Mot. at 13. Second, Adobe contends that what Plaintiffs actually seek is an impermissible advisory opinion that lays the foundation for future litigation, rather than adjudication of an actual controversy between the parties. Id. at 13-14. Third, Adobe argues that Plaintiffs' declaratory relief claim is actually a breach of contract claim in disguise, and that the claim fails because Plaintiffs have failed to plead all the elements of a breach of contract claim. Id. at 15. The Court addresses each contention in turn.
Adobe first claims that, just as the California Plaintiffs fail to allege injury-in-fact for purposes of their CRA claim, the California Plaintiffs fail to allege a cognizable injury-in-fact for purposes of declaratory relief. Mot. at 13; see also Dizol, 133 F.3d at 1222-23 ("A lawsuit seeking federal declaratory relief must first present an actual case or controversy within the meaning of Article III, section 2 of the United States Constitution.... It must also fulfill statutory jurisdictional prerequisites." (citation omitted)). In addition, Adobe claims that the non-California Plaintiffs do not allege any injury whatsoever. Mot. at 13. Adobe argues that therefore none of the Plaintiffs alleges injury-in-fact that is fairly traceable to Adobe's failure to abide by its contractual obligations. Id.
The Court finds that Plaintiffs have adequately pleaded that they have Article III standing to bring a claim for declaratory relief. First, as discussed above, the Court finds that all Plaintiffs have plausibly alleged that they face a substantial, "certainly impending" risk of harm from the 2013 data breach. See supra Part III.A. 1.a. This alleged injury is fairly traceable to Adobe's failure to abide by its contractual obligation to provide "reasonable ... security controls," Agreement at 4, and will plausibly be redressed by the declaratory relief Plaintiffs seek. Accordingly, the Court declines to dismiss Plaintiffs' declaratory relief claim for lack of Article III standing.
Adobe next seeks dismissal of Plaintiffs' declaratory relief claim on the ground that Plaintiffs do not fulfill the Declaratory Judgment Act's statutory jurisdictional requirements. Adobe contends that there is no actionable dispute over whether Adobe is in breach of its contractual obligation to provide "reasonable .... security controls," given that the Agreement expressly provides that no security measure is "100%" effective and that "Adobe cannot ensure or warrant the security of your personal information." Mot. at 14. Adobe further contends that Plaintiffs do not allege that a declaration of rights is necessary at this time. Id. Adobe asserts that Plaintiffs' claim is consequently unripe,
A claim for relief under the Declaratory Judgment Act requires a dispute that is: (1) "definite and concrete, touching the legal relations of parties having adverse legal interests"; (2) "real and substantial"; and (3) "admit[ting] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." MedImmune, 549 U.S. at 127, 127 S.Ct. 764 (internal quotation marks omitted). The Supreme Court has admitted that "not ... the brightest of lines" separates cases that satisfy the statutory jurisdictional requirements and those that do not. Id. The central question, however, is whether "`the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Id. (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941)).
The Court finds that Plaintiffs have adequately alleged the existence of an actionable dispute for purposes of the Declaratory Judgment Act. Plaintiffs have plausibly alleged the existence of a "definite and concrete" dispute over the meaning and the scope of Adobe's contractual obligation to provide "reasonable" security measures. See Compl. ¶¶ 120-123. According to the Complaint, although "Adobe maintains that its security measures were adequate and remain adequate," there were in fact a number of standard industry practices that Adobe failed to follow. Id. ¶¶ 62, 123-124. Although Adobe contends that there can be no actionable dispute concerning the adequacy of Adobe's security controls because the Agreement expressly provides that no security measure is "100%" effective, Mot. at 14, this disclaimer does not relieve Adobe of the responsibility (also contained in the Agreement) to provide "reasonable" security, see Agreement at 4; Compl. ¶ 120.
The remaining jurisdictional prerequisites for a declaratory relief claim are met here as well. The dispute over the reasonableness of Adobe's security controls touches on the parties' legal relations, and the parties' legal interests are adverse. See MedImmune, 549 U.S. at 127, 127 S.Ct. 764. Plaintiffs plausibly allege that they face a substantial risk of future harm if Adobe's security shortcomings are not redressed, making this dispute sufficiently real and immediate,
The Court concludes that Plaintiffs have plausibly alleged that they satisfy the statutory jurisdictional requirements for obtaining declaratory relief. Adobe is not entitled to dismissal of Plaintiffs' claim on this basis.
Adobe's third and final challenge to Plaintiffs' declaratory relief claim is that Plaintiffs are "seeking a declaration that Adobe has breached its contractual obligations" without having alleged all the elements of a breach of contract claim. Mot. at 15. Relying on Gamble v. GMAC Mortgage Corp., No. 08-5532, 2009 WL 400359 (N.D.Cal. Feb. 18, 2009), and Household Financial Services, Inc. v. Northern Trade Mortgage Corp., No. 99-2840, 1999 WL 782072 (N.D.Ill. Sept. 27, 1999), Adobe contends that Plaintiffs' claim therefore falls outside the scope of the Declaratory Judgment Act. Id.
Adobe mischaracterizes Plaintiffs' declaratory relief claim. In both Gamble and Household Financial, the plaintiffs sought a judicial decree stating that the defendants had breached their contractual obligations. Gamble, 2009 WL 400359, at *2 ("[P]laintiffs want the court to issue a declaratory judgment declaring that defendants breached the forbearance agreements"); Household Fin., 1999 WL 782072, at *3 ("Plaintiff does not request the court to clarify the parties' rights under the loan purchase agreement. Rather, plaintiff requests a judicial declaration that defendant breached the agreement."). That is not what Plaintiffs seek here. As discussed above, Plaintiffs seek a declaration clarifying Adobe's ongoing contractual obligation to provide reasonable security. Opp'n at 15; Compl. ¶ 124 ("Plaintiffs ... seek a declaration [] that Adobe's existing security measures do not comply with its contractual obligations ...." (emphasis added)). Plaintiffs' claim thus requests precisely the type of relief that the Declaratory Judgment Act is supposed to provide: a declaration that will prevent future harm from ongoing and future violations before the harm occurs. See, e.g. Minn. Min. & Mfg. Co. v. Norton Co., 929 F.2d 670, 673 (Fed.Cir.1991) ("In promulgating the Declaratory Judgment Act, Congress intended to prevent avoidable damages from being incurred by a person uncertain of his rights and threatened with damage
For the foregoing reasons, the Court finds that Plaintiffs have plausibly pleaded that they fulfill both Article III's standing requirements and the statutory jurisdictional requirements of the Declaratory Judgment Act. The Court also finds that Plaintiffs have plausibly stated a claim for declaratory relief. Accordingly, the Court DENIES Adobe's Motion to Dismiss Plaintiffs' declaratory relief claim.
Plaintiffs' third cause of action is for injunctive relief under the UCL on behalf of all Plaintiffs ("UCL injunction claim"). See Compl. ¶¶ 125-132. The UCL creates a cause of action for business practices that are: (1) unlawful, (2) unfair, or (3) fraudulent. Cal. Bus. & Prof. Code § 17200 et seq. The UCL's coverage is "sweeping," and its standard for wrongful business conduct is "intentionally broad." In re First Alliance Mortg. Co., 471 F.3d 977, 995 (9th Cir.2006) (internal quotation marks omitted). Each prong of the UCL provides a separate and distinct theory of liability. Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007). To assert a UCL claim, a private plaintiff must have "suffered injury in fact and ... lost money or property as a result of the unfair competition." Rubio v. Capital One Bank, 613 F.3d 1195, 1203 (9th Cir.2010) (quoting Cal. Bus. & Prof. Code § 17204). Plaintiffs assert claims under both the "unfair" and "unlawful" prongs of the UCL. Compl. ¶ 126.
Adobe seeks dismissal of Plaintiffs' UCL injunction claim on three grounds. First, Adobe contends that Plaintiffs lack standing to bring this claim. Mot at 16. Second, Adobe contends that Plaintiffs impermissibly seek a contract remedy without bringing a breach of contract claim. Id. Finally, Adobe contends that Plaintiffs have failed to allege any conduct that is unfair or unlawful within the meaning of the UCL. Id. The Court addresses each of Adobe's contentions below.
Adobe argues that, just as with Plaintiffs' CRA and declaratory relief claims, Plaintiffs lack Article III standing to bring their UCL injunction claim because no Plaintiff has suffered an injury-in-fact. Id. For the same reason, Adobe contends that Plaintiffs lack statutory standing to bring a claim under the UCL. Id. The Court finds that Plaintiffs have Article III standing to bring their UCL injunction claim for the same reasons that Plaintiffs have Article III standing to bring their CRA and declaratory relief claims. See supra Part III.A.1; Part III.B.1.
Adobe further argues that Plaintiffs lack statutory standing under the UCL. Mot. at 16. In order to establish standing for a UCL claim, plaintiffs must show they personally lost money or property "as a result of the unfair competition." Cal. Bus. & Prof. Code § 17204; Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 330, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011). "There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing
Four of the six Plaintiffs allege they personally spent more on Adobe products than they would had they known Adobe was not providing the reasonable security Adobe represented it was providing. See Compl. ¶ 79 ("Had Mr. Kar known that Adobe's security practices were inferior to industry standard security practices, he would not have purchased [a] license online ...."); id. ¶ 84 ("Had Ms. Halpain known that Adobe employed substandard security practices, she would not have subscribed to the Creative Cloud service."); id. ¶ 91 ("Had Ms. McGlynn known that Adobe employed substandard security practices, she would not have subscribed to the Creative Cloud Service."); id. ¶¶ 98-99 ("McHenry purchased Adobe Illustrator ... for approximately $579.99.... [He] relied on Adobe's Privacy Policy and believed that Adobe would provide reasonable security ...."). Only Plaintiffs Duke and Page do not allege this or any other UCL injury.
The Court finds plausible Plaintiffs Kar, Halpain, McGlynn, and McHenry's allegations that they relied on Adobe's representations regarding security to their detriment. The parties agree that every Plaintiff was required to accept Adobe's Privacy Policy before creating an account or providing Adobe with their personal information. Compl. ¶¶ 31-32; Mot. at 3. In that policy, Adobe represented that it would provide reasonable measures to protect customers' personal identifying and financial information. See Mot. at 12. It is also plausible that a company's reasonable security practices reduce the risk of theft of customer's personal data and thus that a company's security practices have economic value. See Kwikset, 51 Cal.4th at 330, 120 Cal.Rptr.3d 741, 246 P.3d 877 (Plaintiffs can establish UCL standing by alleging they paid more than they actually valued the product); see also In re iPhone Application Litig., 844 F.Supp.2d 1040, 1072 (N.D.Cal.2012) (finding UCL standing was adequately pleaded where plaintiffs claimed they paid more for iPhones than they would if they had known of defendant's alleged misrepresentations or omissions).
Accordingly, the Court finds that Plaintiffs Kar, Halpain, McGlynn, and McHenry have plausibly pleaded that they have standing to bring their UCL injunction claim. Plaintiffs Duke and Page, however, have not, though the Court cannot conclude they would be unable to cure this deficiency in an amended complaint. Accordingly, the Court GRANTS Adobe's Motion to Dismiss Plaintiffs' UCL injunction claim as to Plaintiffs Duke and Page without prejudice. As to the remaining Plaintiffs, Adobe is not entitled to dismissal of Plaintiffs' UCL injunction claim on the basis of standing.
Adobe additionally argues that Plaintiffs' UCL injunction claim, like Plaintiffs' declaratory relief claim, is actually a contract claim in disguise. Mot. at 17. Specifically, Adobe claims that the UCL injunction claim is, in reality, a claim for specific performance of the Agreement. Id. ("Plaintiffs' claim ... is that Adobe should be ordered to `honor the terms of its contracts'.... Thus, what Plaintiffs seek is the contract remedy of specific performance." (quoting Compl. ¶ 129)). As specific performance is a contract remedy, Adobe contends that Plaintiffs need to plead a breach of contract claim in order to seek specific performance. Id. (citing Forever 21, Inc. v. Nat'l Stores Inc., No. 12-10807, 2014 WL 722030, at *5 (C.D.Cal. Feb. 24, 2014); Guidiville Rancheria of Cal. v. United States, 5 F.Supp.3d 1142, 1159-60,
Plaintiffs acknowledge that they have not pleaded a breach of contract claim. Opp'n at 21. Nevertheless, Plaintiffs contend that their request for an injunction is just that — a request for an injunction under the UCL, not one for the contract remedy of specific performance. Id. As Plaintiffs are not seeking a contract remedy, Plaintiffs contend they do not need to plead the elements of breach of contract. Id.
The Court agrees with Plaintiffs that their request is indeed a request for an injunction under the UCL, and not one for specific performance. Plaintiffs do not allege that Adobe violated the UCL solely on the grounds that Adobe failed to "honor the terms of its contracts." See Compl. ¶¶ 128-131. While Plaintiffs do allege "systematic breach of [] contracts" as one of Adobe's allegedly unlawful practices, Plaintiffs also allege that Adobe's actions are independently unlawful because they violate the duty California imposes on businesses to reasonably safeguard customers' data under the CRA. Compl. ¶ 130; accord Opp'n at 21 ("Adobe's duties arose from promises it made in its contracts and elsewhere, and from statute." (emphasis added)). The Court has already determined that Plaintiffs have standing to bring claims under this statute. See supra Part III.A. Thus, contrary to Adobe's assertion, Plaintiffs have alleged a basis for a UCL violation other than breach of contract. The Court therefore concludes that Plaintiffs' request is for an injunction to remedy Adobe's alleged UCL violations, and not to remedy an unalleged breach of contract.
Adobe further challenges Plaintiffs' UCL injunction claim on the ground that Plaintiffs do not plead any "unlawful" or "unfair" conduct that violates the UCL. Mot. at 18-19. The Court first considers Plaintiffs' "unlawful" allegations, then turns to Plaintiffs' "unfair" allegations.
The "unlawful" prong of the UCL prohibits "anything that can properly be called a business practice and that at the same time is forbidden by law." Cel-Tech, 20 Cal.4th at 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (internal quotation marks omitted). By proscribing "any unlawful" business practice, the UCL permits injured consumers to "borrow" violations of other laws and treat them as unlawful competition that is independently actionable. Id. As predicates for their claim under the UCL's "unlawful" prong, Plaintiffs allege that Adobe: (1) violated the CRA, (2) systematically breached contracts, and (3) "failed to comport with a reasonable standard of care and California public policy" as embodied in a number of California statutes. Compl. ¶ 130 (citing the CRA, the Online Privacy Protection Act ("OPPA"), Cal. Bus. & Prof. Code § 22576, and the Information Practices Act ("IPA"), Cal. Civ. Code § 1798 et seq.).
Adobe argues that none of these allegations are adequate to sustain a UCL claim. As to Plaintiffs' CRA allegation, Adobe contends that because Plaintiffs lack standing to bring a CRA claim, Plaintiffs similarly lack standing to pursue a UCL claim premised on a violation of the CRA. Mot. at 18. However, the Court has found that Plaintiffs do have standing to bring their CRA claim, and thus standing presents no barrier to Plaintiffs' efforts to base their UCL unlawful claim on Adobe's alleged violation of the CRA. Accordingly, the Court finds that Plaintiffs have adequately
The "unfair" prong of the UCL creates a cause of action for a business practice that is unfair even if not proscribed by some other law. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1143, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003). "The UCL does not define the term `unfair.' ... [And] the proper definition of `unfair' conduct against consumers `is currently in flux' among California courts." Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1169 (9th Cir.2012) (citing Lozano, 504 F.3d at 735). Nevertheless, there are at least two possible tests: (1) the "tethering test," which requires "that the public policy which is a predicate to a consumer unfair competition action under the `unfair' prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions," and (2) the "balancing test," which examines whether the challenged business practice is "immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim."
Adobe contends that Plaintiffs' claim under the "balancing test" is "conclusory and formulaic." Mot. at 19. Specifically, Adobe claims that Plaintiffs do not allege any injuries stemming from Adobe's allegedly unfair conduct and thus that there is no "harm" to balance against any "utility." Reply at 9-10. As to the "tethering test," Adobe contends that Plaintiffs' allegations fail because Plaintiffs do not allege any violations of the OPPA or the IPA, Mot. at 19, or any effects that are "comparable to... a violation of" those statutes, Reply at 9 (quoting Cel-Tech, 20 Cal.4th at 187, 83 Cal.Rptr.2d 548, 973 P.2d 527).
Adobe's argument that Plaintiffs' "balancing test" allegations are insufficient is unpersuasive. Adobe appears to object that Plaintiffs do not allege any injuries resulting from Adobe's allegedly unfair conduct in the precise paragraph of the
Turning to the "tethering test," the Court notes that contrary to Adobe's assertion, Plaintiffs do not need to plead any direct violations of a statute to bring a claim under the UCL's unfair prong. Instead, Plaintiffs need merely to show that the effects of Adobe's conduct "are comparable to or the same as a violation of the law, or otherwise significantly threaten[] or harm[] competition." Cel-Tech, 20 Cal.4th at 187, 83 Cal.Rptr.2d 548, 973 P.2d 527. Plaintiffs argue that the OPPA, the IPA, and the CRA collectively reflect California's public policy of "protecting customer data." Opp'n at 20. The Court agrees that California legislative intent is clear on this point, and thus finds that Plaintiffs have adequately alleged that Adobe's conduct is "comparable" to a violation of law. See, e.g., Cal. Civ. Code § 1798.1 ("The Legislature declares that... all individuals have a right of privacy in information pertaining to them.... The increasing use of computers ... has greatly magnified the potential risk to individual privacy that can occur from the maintenance of personal information."); Cal. Civ. Code § 1798.81.5(a) ("It is the intent of the Legislature to ensure that personal information about California residents is protected."); Cal. Bus. & Prof. Code § 22578 (explaining that the Legislature's intent was to have a uniform policy state-wide regarding privacy policies on the Internet). Accordingly, the Court concludes that Plaintiffs have pleaded adequate facts to bring a claim under the "tethering test" of the UCL's "unfair" prong.
In sum, the Court concludes that Plaintiffs Duke and Page have not adequately pleaded that they have standing to bring a claim under the UCL. The Court therefore GRANTS Adobe's Motion to Dismiss this claim as to Plaintiffs Duke and Page without prejudice. However, the Court finds that Plaintiffs Halpain, McGlynn, Kar, and McHenry have adequately pleaded both standing and the necessary elements to bring their UCL injunction claim. Accordingly, the Court DENIES Adobe's Motion to Dismiss this claim as to those Plaintiffs.
Plaintiffs' fourth and final cause of action is for restitution under the UCL on behalf of purchasers of Adobe's ColdFusion
Some courts reserve the question of whether plaintiffs may assert claims based on products they did not buy until ruling on a motion for class certification. See, e.g., Forcellati v. Hyland's, Inc., 876 F.Supp.2d 1155, 1161 (C.D.Cal.2012); Cardenas v. NBTY, Inc., 870 F.Supp.2d 984, 992 (E.D.Cal.2012). Others "hold that a plaintiff may have standing to assert claims for unnamed class members based on products he or she did not purchase so long as the products and alleged misrepresentations are substantially similar." Miller v. Ghirardelli Chocolate Co., 912 F.Supp.2d 861, 869 (N.D.Cal.2012) (citing cases); see also, e.g., Colucci v. ZonePerfect Nutrition Co., No. 12-2907, 2012 WL 6737800, at *4 (N.D.Cal. Dec. 28, 2012); Astiana v. Dreyer's Grand Ice Cream, Inc., No. 11-2910, 2012 WL 2990766, at *11-13 (N.D.Cal. July 20, 2012). Still other courts have dismissed claims for lack of standing when the plaintiff did not purchase the product on which the claim is based. See, e.g., Granfield v. NVIDIA Corp., No. 11-5403, 2012 WL 2847575, at *6 (N.D.Cal. July 11, 2012) ("[W]hen a plaintiff asserts claims based both on products that she purchased and products that she did not purchase, claims relating to products not purchased must be dismissed for lack of standing."); Carrea v. Dreyer's Grand Ice Cream, Inc., No. 10-1044, 2011 WL 159380, at *3 (N.D.Cal. Jan. 10, 2011), aff'd on other grounds, 475 Fed.Appx. 113 (9th Cir.2012).
This Court has previously applied the "substantially similar" approach and will do so again here. E.g., Werdebaugh v. Blue Diamond Growers, No. 12-2724, 2013 WL 5487236, at *12 (N.D.Cal. Oct. 2, 2013); Brazil v. Dole Food Co., No. 12-1831, 2013 WL 5312418, at *7 (N.D.Cal. Sep 23, 2013). Under this approach, both the products themselves and the misrepresentations the plaintiff challenges must be similar, though not identical. In this case, the misrepresentations and omissions at issue are the same for both ColdFusion and Creative Cloud, as all Adobe products are governed by the same privacy policy. See Compl. ¶¶ 29-32. Adobe contends, however, that ColdFusion and Creative Cloud are sufficiently dissimilar as products that Plaintiffs lack standing to assert claims as to ColdFusion. Drawing from the Complaint, Adobe identifies the following differences between the two products: (1) ColdFusion is licensed-based whereas Creative Cloud is subscription-based; (2) customers use ColdFusion to build dynamic web sites whereas Adobe uses Creative Cloud to sell software subscriptions; and (3) ColdFusion costs up to several thousand dollars per license whereas Creative Cloud plans cost "between $19.99 and $79.99" a month. Mot. at 20 n.11 (citing Compl. ¶¶ 19-20). The Court notes, however,
The Court finds that the remaining two differences between ColdFusion and Creative Cloud are not significant enough to prevent the products from being "substantially similar" for purposes of the claims alleged here. Plaintiffs' theory of harm for their UCL restitution claim is that ColdFusion and Creative Cloud are "heavily security-dependent" products that Plaintiffs either would not have purchased or for which Plaintiffs would not have paid as much had Plaintiffs known the truth about Adobe's inadequate security practices. Opp'n at 17; Compl. ¶¶ 136-139. Neither the cost of a product nor whether the product is license- or subscription-based is relevant to the inquiry here, i.e., whether purchasers of the products valued security, and thus whether they overpaid for their Adobe products in light of Adobe's alleged misrepresentations and omissions regarding security. This distinguishes this case from cases applying the substantially similar approach in the food mislabeling context, where differences in the products could be expected to have an impact on whether the customer purchased the product in reliance on the defendant's misrepresentations. See, e.g., Larsen v. Trader Joe's Co., No. 11-5188, 2012 WL 5458396, at *1, *4 (N.D.Cal. June 14, 2012) (plaintiffs lacked standing to challenge label statements on products plaintiffs did not purchase where products at issue were as disparate as cinnamon rolls, ricotta cheese, apple juice, and sandwich cookies). Accordingly, the Court concludes that Plaintiffs have pleaded sufficient facts to establish that Plaintiffs Halpain and McGlynn, the proposed representatives of a restitution class, have standing to assert claims related to both Creative Cloud and Cold-Fusion.
For an omission to be actionable under the UCL, "the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose." Daugherty v. Am. Honda Motor Co., 144 Cal.App.4th 824, 835, 51 Cal.Rptr.3d 118 (2006); see also Berryman v. Merit Prop. Mgmt., Inc., 152 Cal.App.4th 1544, 1557, 62 Cal.Rptr.3d 177 (2007) ("[A] failure to disclose a fact one has no affirmative duty to disclose is [not] `likely to deceive' anyone within the meaning of the UCL." (quoting Daugherty, 144 Cal.App.4th at 838, 51 Cal.Rptr.3d 118)). The California Courts of Appeal have held that there are four circumstances in which a duty to disclose may arise: "(1) when the defendant is the plaintiff's fiduciary; (2) when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; [or] (4) when the defendant makes partial representations that are misleading because some other material fact has not been disclosed." Collins v. eMachines, Inc., 202 Cal.App.4th 249, 255, 134 Cal.Rptr.3d 588 (2011). "[A] fact is deemed `material,' and obligates an exclusively knowledgeable defendant to disclose it, if a `reasonable [consumer]' would deem it important in determining how to act in the transaction at issue." Id. at 256, 134 Cal.Rptr.3d 588 (citing Engalla v. Permanente Med. Grp., Inc., 15 Cal.4th 951, 977, 64 Cal.Rptr.2d 843, 938 P.2d 903 (1997)). Plaintiffs claim that Adobe had exclusive knowledge of the fact that its security practices fell short of industry standards,
Adobe does not dispute that facts regarding its security practices are material. Rather, Adobe contends that Adobe did not have exclusive knowledge of its security practices because Adobe's security shortcomings were widely reported in the press before the 2013 data breach. Mot. at 21-22; Reply at 11-13. Specifically, Adobe notes that its security problems were detailed in articles published by CNN Money, the New York Times, the Wall Street Journal, and Reuters, Reply at 12, and further that Plaintiffs knew of these reports, id. (noting that the original individual complaints cite some of these reports); see Compl. ¶¶ 42-46 (listing security problems prior to the 2013 data breach under the heading "Adobe's Abysmal Security Record"). Adobe notes that courts in other cases have found that defendants did not have "exclusive knowledge" of the alleged omission when the allegedly omitted fact was widely reported in similarly reputable news sources. Reply at 11-12 (citing Herron v. Best Buy Co., 924 F.Supp.2d 1161, 1175-76 (E.D.Cal. 2013) (finding that defendants did not have exclusive knowledge of battery testing conditions when those conditions had been reported in Newsweek); Gray v. Toyota Motor Sales, U.SA., No. 08-1690, 2012 WL 313703, at *8 (C.D.Cal. Jan. 23, 2012) (finding that defendant did not have exclusive knowledge of discrepancy between EPA estimate of car's gas mileage and real-world results when discrepancy was reported in Consumer Reports and USA Today)). Adobe contends that "as a matter of law and logic," Adobe could not have exclusive knowledge of the fact that it "had not implemented several industry-standard security measures." Id. at 11 (internal quotation marks omitted).
The Court is not convinced. It is one thing to have a poor reputation for security in general, but that does not mean that Adobe's specific security shortcomings were widely known. None of the press reports Adobe identifies discusses any specific security deficiencies, and Plaintiffs expressly allege that the extent of Adobe's security shortcomings were revealed only after the 2013 data breach. Compl. ¶ 59. Given that prior reports of Adobe's security problems were highly generic, the Court cannot say that Adobe did not have exclusive knowledge of its failure to implement industry-standard security measures.
Adobe further argues that even if Plaintiffs identify an actionable omission, Plaintiffs cannot allege that they relied on that omission, as is required for a claim under the "fraudulent" prong of the UCL. Mot. at 23 (citing In re Facebook PPC Adver. Litig., No. 09-3043, 2010 WL 3341062, at *9 (N.D.Cal. Aug. 25, 2010)). Adobe reasons that both Halpain and McGlynn could have cancelled their subscriptions to Creative Cloud upon learning of Adobe's security deficiencies. Mot. at 24. Neither did
The Court disagrees. Plaintiffs allege that they would not have subscribed to Creative Cloud in the first instance had they known of Adobe's allegedly unsound security practices. Compl. ¶¶ 84, 91. Having invested time, money, and energy in Creative Cloud, however, Plaintiffs allege that the costs to switch to another product — which include early cancellation fees, id. ¶¶ 88, 93 — are now too high to justify abandoning their Creative Cloud subscriptions. See Opp'n at 19 (citing Compl. ¶ 137). This is a plausible allegation. Moreover, a plaintiff need not allege that a product became totally worthless to her once the defendant's misrepresentation came to light in order to plead actionable reliance. Rather, it is enough to allege that the product is worth less to the plaintiff in light of the misrepresentation. See Kwikset, 51 Cal.4th at 330, 120 Cal.Rptr.3d 741, 246 P.3d 877 (plaintiff may establish reliance by alleging that she "paid more than ... she actually valued the product"). Thus, Plaintiffs need not have concluded that Creative Cloud is completely worthless, and thus have canceled their subscriptions, in order to have detrimentally relied on Adobe's alleged misrepresentations or omissions regarding security.
For these reasons, the Court concludes that Plaintiffs have adequately pleaded that Adobe had a duty to disclose that its security practices were not up to industry standards, that this omission was material, and that Plaintiffs relied on this omission to their detriment. Thus, Plaintiffs have adequately pleaded their UCL restitution claim under the UCL's "fraudulent" prong, and Adobe is not entitled to dismissal of this claim.
Plaintiffs also assert two claims under the UCL's "unfair" prong for their UCL restitution claim. First, Plaintiffs allege that Adobe's competition invested in industry-standard security practices, and therefore Adobe gained an unfair competitive advantage to the extent that Adobe did not. Compl. ¶ 138. Plaintiffs contend that this conduct was "unethical, unscrupulous, and substantially injurious." Id. Second, Plaintiffs allege that Adobe's conduct undermined California public policy as embodied in the OPPA, the IPA, and the CRA. Id.
Adobe's objection to these claims again is that Plaintiffs did not include all of the
Adobe also repeats the argument that Plaintiffs' "public policy" allegations are flawed because Plaintiffs do not plead violations of the OPPA, the IPA, and the CRA. Mot. at 25. As previously discussed, see supra Part III.C.3.b, the "unfair" prong does not require Plaintiffs to plead direct violations of these statutes. Instead, the Court has already found that Plaintiffs plausibly allege that the OPPA, the IPA, and the CRA reflect California's policy objective of reasonably securing customer data. See supra Part III.C.3.b. Plaintiffs further plausibly allege that Adobe's purported failure to provide industry-standard security undermines that policy objective. The Court therefore finds that Plaintiffs have pleaded with sufficient specificity all the necessary elements of a claim under the UCL's "unfair" prong for their UCL restitution claim, and Adobe is not entitled to dismissal of the claim on that basis.
For the foregoing reasons, the Court DENIES Adobe's Motion to Dismiss Plaintiffs' UCL restitution claim.
For the reasons discussed above, the Court:
Should Plaintiffs elect to file a Second Amended Complaint curing the deficiencies identified herein, Plaintiffs shall do so within thirty days of the date of this Order. Failure to meet the thirty-day deadline to file an amended complaint or failure to cure the deficiencies identified in this Order will result in a dismissal with prejudice. Plaintiffs may not add new causes of actions or parties without leave of the Court or stipulation of the parties pursuant to Federal Rule of Civil Procedure 15.
Here, Adobe requests that the Court take judicial notice of the transcript of the case management conference hearing held before this Court on March 13, 2014. Def. May 21 RJN Ex. A. This transcript is an appropriate subject for judicial notice, as it is a matter of public record. Adobe also requests that the Court take judicial notice of Adobe's Privacy Policies of May 7, 2012 and December 20, 2013, id. Exs. B, C; Adobe's General Terms of Use, id. Ex. D; and the subscription terms for Adobe's Creative Cloud, id. Ex. E. These documents are referenced and quoted in the Complaint, e.g., Compl. ¶¶ 5, 29, 30-32, 84, 91, 99, 119-120, 129, and the Court may therefore take judicial notice of these documents under the doctrine of incorporation by reference. See, e.g., Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir.2005) (district court may consider "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading" (alteration in original) (internal quotation marks omitted)). Finally, Adobe requests that the Court take judicial notice of three newspaper articles discussing Adobe's security problems. Def. July 2 RJN Exs. A, B, C. The Court may take judicial notice of the existence of these reports as indication of what was in the public realm, but not for the veracity of any arguments or facts contained within. See Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 960 (9th Cir.2010). Accordingly, the Court GRANTS Adobe's Requests for Judicial Notice dated May 21, 2014 and July 2, 2014.
Plaintiffs request that the Court take judicial notice of one of Adobe's End User License Agreements ("EULA"). Pl. RJN Ex. A. The EULA is referenced in the Complaint, see, e.g., Compl. ¶¶ 29-32, 41, 105, and is publicly available on Adobe's website. Accordingly, the Court GRANTS Plaintiffs' Request for Judicial Notice. See Knievel, 393 F.3d at 1076.
