Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.D. Cal.: Purchasers unable to pursue claims against Sony over post-sale representations regarding security of gaming network, (Jan 23, 2014)

By Jody Coultas, J.D.

Putative class action claims against Sony Computer Entertainment America, LLC for allegedly misrepresenting the security of its online gaming network were dismissed, in part, because the consumers could not show that they were actually damaged by representations made after purchasing Sony’s gaming consoles, the federal district court in San Diego has held (In re: Sony Gaming Networks and Customer Data Security Breach Litigation, January 21, 2014, Battaglia, A.). Claims for restitution and injunctive relief survived Sony’s motion to dismiss

Sony’s PlayStation Portable hand-held device (PSP) and the PlayStation 3 console allow users to connect to the Internet and access Sony’s Play Station Network. To sign up for the Network, consumers were required to provide Sony with personal identifying information and credit and debit card information. Hackers allegedly accessed Sony’s Network and stole the personal information of millions of Sony’s customers. Sony allegedly failed to inform the public of the breach until nine days after the breach, when Sony made a public statement that customers’ information had been compromised.

Standing. Sony argued that the named plaintiffs did not have standing to pursue non-Ohio state law claims on behalf of non-Ohio residents against Sony Online Entertainment (SOE), and that the consumers lacked Article III standing for failure to assert an injury-in-fact.

Only one named plaintiff, an Ohio resident, was an SOE network subscriber. However, the consumers argued that the Ohio named plaintiff had standing to pursue claims: (1) on behalf of SOE network subscribers alleging violations of Ohio law; and (2) on behalf of all SOE network subscribers, regardless of their state of residence, for enforcement of a settlement agreement. Although the Ohio law claims were dismissed without leave to amend, the court held that the consumers had standing to assert claims against SOE for enforcement of a settlement agreement.

The consumers had Article III standing, according to the court. An injury-in-fact is an invasion of a legally protected interest which is concrete and particularized, and actual or imminent. Courts have routinely denied motions to dismiss based on Article III standing where a plaintiff alleges that his personal information was collected and then wrongfully disclosed, as opposed to alleging that his personal information was collected without consent. The consumers sufficiently alleged that their personal information was collected by Sony and then wrongfully disclosed as a result of the intrusion sufficient. Sony argued that the allegations were insufficient because none of the named plaintiffs have alleged that a third party ever accessed that personal information. However, such an allegation is not required to establish standing. Rather, the consumers plausibly alleged a “credible threat” of impending harm based on the disclosure of the information.

State law claims. The California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA) claims based on misrepresentations regarding uninterrupted PSN and Internet access and the consumers’ ability to seek injunctive relief were dismissed without leave to amend by the court. The user agreement clearly stated that access to the PSN and online connectivity may be interrupted.

However, the UCL, FAL, and CLRA claims based on misrepresentations and omissions regarding reasonable network security and industry-standard encryption also survived dismissal, according to the court. Sony argues the alleged misrepresentations and/or deceptive conduct could not have plausibly caused harm to consumers. Standing under the UCL and FAL required the consumers to allege that Sony’s conduct, whether an affirmative misrepresentation or an actionable omission, was an “immediate” cause and not the “sole” cause of the alleged injury. Because the consumers alleged that Sony omitted material information regarding the security of its services, and that this information should have been disclosed to consumers at the time consumers purchased their consoles, the consumers sufficiently alleged a loss of money or property “as a result” of Sony’s alleged unfair business practices. The allegations that Sony misrepresented and omitted material information regarding the security of its network were also sufficiently alleged.

A Florida Deceptive and Unfair Trade Practices Act (FDUTPA) claim for actual damages was dismissed without leave by the court. The consumers alleged that Sony violated the FDUTPA by falsely representing the security of Sony Online Services. The consumers sought to recover the purchase price of their consoles, monthly premiums paid while the Sony network was down, and the value of their personal information. None of these injuries were recoverable under the FDUTPA. The consumers did not allege they would not have purchased the consoles but for the alleged misrepresentations, especially considering the misrepresentations were presented to consumers after purchase. Consequential damages, such as paying third parties, are not permitted under the FDUTPA. Claims of an entitlement to the value of the personal information, without an actual monetary loss relating to the disclosure of the personal information, is also not recoverable under the FDUTPA.

The Michigan Consumer Protection Act (MCPA) claim for actual damages because the consumers could not show reliance on the alleged misrepresentations was dismissed with prejudice by the court. The MCPA requires a plaintiff to allege actual reliance on the defendant’s alleged deceptive conduct with specificity. The alleged misrepresentations were presented after purchase. Although a “frustration of a plaintiff’s expectations” can constitute damages, the consumer’s expectation of uninterrupted service was not reasonable.

A Missouri consumer stated a Missouri Merchandising Practices Act (MMPA) claim against Sony, according to the court. The consumer alleged that Sony violated the MMPA by “failing to disclose that the security of Plaintiffs’ Personal Information on Sony Online Services was inadequate,” and that Sony had a “legal duty” to disclose this information to consumers. The claim sufficiently alleged an ascertainable loss of money or property caused by Sony’s alleged misconduct; the purchase or lease of merchandise; and a deceptive or unfair practice. There was evidence that the consumer would not have purchased his Console had Sony disclosed the truth regarding the security of its network.

Because the consumer stated a plausible claim under the New Hampshire Consumer Practices Act (NHCPA), the court denied Sony’s motion to dismiss the claim for statutory damages. The court declined to hold that the language in the PSN User Agreement and/or the PSN Privacy Policy did not create an “overall misleading” impression as a matter of law. However, the court dismissed the NHCPA claims for actual damages based on Sony’s alleged misrepresentations.

The New York Deceptive Practices Act (NYDPA) claim for actual damages was dismissed by the court. The consumer’s attempt to plead actual injury resulting from a loss of privacy and/or allegations that they purchased their consoles as a result of Sony’s material misrepresentations was insufficient under New York law. Although an underlying privacy violation can form the basis of a NYDPA claim, information unintentionally disclosed due to a data breach cannot form the basis of such a claim. The consumers also could not plausibly allege an injury relating to the purchase of their consoles based on representations seen after the purchase.

Because the Ohio consumer was unable to locate an act “substantially similar to an act or practice previously declared to be deceptive” by the Ohio Attorney General or an Ohio state court, the court dismissed the Ohio Consumer Sales Practices Act claim without leave to amend. The court also dismissed the Ohio Deceptive Trade Practices Act claim because most federal courts and all lower state courts have concluded that relief under the statute is not available to consumers.

The court held that the Texas consumer failed to allege an actual injury caused by Sony’s unlawful conduct. To prevail under the Texas Deceptive Trade Practices Act, a plaintiff must prove that the defendant’s misrepresentation or unlawful conduct was the producing cause of economic damages or damages for mental anguish. It was factually impossible for Sony’s alleged misrepresentations to have been the “producing cause” of the consumer’s decision to purchase their consoles. Also, Sony clearly disclaimed any right to uninterrupted and continuous network access.

The consumers sufficiently stated UCL, FAL, FDUTPA, MCPA, MMPA, and NHCPA claims seeking restitution and injunctive relief, according to the court. The consumers sought seek restitution based on the fact that Sony benefitted financially from the sale of PSPs and PS3s, which was made possible and enhanced by Sony’s fraudulent omissions, and may be able to recover the purchase price of their consoles or a portion thereof.

The case is MDL No.11md2258 AJB (MDD).

Attorneys: Ben Barnow (Barnow and Associates PC) for Arthur Howe. Amanda Catherine Fitzsimmons (DLA Piper LLP), Douglas H. Meal (Ropes and Gray), and Karin Pagnanelli (Mitchell, Silberberg & Knupp LLP) for Sony Computer Entertainment America LLC

Companies: Sony Computer Entertainment America, LLC

Cases: Privacy StateUnfairTradePractices CaliforniaNews