In re Tjx Companies Retail Sec. Breach Litigation

Page 209

527 F.Supp.2d 209

In re TJX COMPANIES RETAIL SECURITY BREACH LITIGATION.

Civil Action No. 07-10162-WGY.

United States District Court, D. Massachusetts.

December 18, 2007.

Janet G. Abaray, Lopez, Hodes, Restaino, Milman & Skikos, Cincinnati, OH, William A. Baird, Launa Nicole Everman, Wayne S. Kreger, Milstein, Adelman & Kreger LLP, North Santa Monica, CA, John Michael Barclay, Richard P. Rouco, Whatley Drake & Kailas LLC, F. Inge Johnstone, The Lamb Firm LLC, Archie C. Lamb, Jr., Law Offices of Archie Lamb LLC, E. Kirk Wood, Birmingham, AL, Ben Barnow, Barnow & Associates, P.C., Aron David Robinson, Law Office of Aron D., Kevin Barry Rogers, Law Offices of Kevin Rogers, John R. Wylie, Futterman, Howard, Watkins, Wylie & Ashley, Chicago, IL, James R. Byrne Tyler, William H. Champlin, III, William S. Fish, Jr., Cooper & Alcorn LLP, Hartford, CT, Michael G. Caldwell, Benjamin A. Solnit, Tyler Cooper & Alcorn LLP, New Haven, CT, Richard L. Coffman, The Collins Law Firm, Tallahassee, FL, Richard Lyle Coffman, The Coffman Law, Beaumont, TX, Michael G. Crow, Crow Law Firm, LLC, Orleans, LA, Gregory Louis Davis, Greg Davis LLC, Montgomery, AL, Danielle Disporto, Lester L. Levy, Michele F. Raphael, Wolf Popper LLP, Elizabeth Rosenberg, Joe R. Whatley, Jr., Whatley Drake & Kailas

LLC, New York, NY, Robert E. Ditzion, Shapiro, Haber & Urmy, Michael T. Fantini, Jon J. Lambiras, Sherrie R. Savett, Berger & Montague, P.C., Philadelphia, PA, Kristen Marquis Fritz, Robert T. Naumes, Thornton & Naumes LLP, Jonathan Shapiro, Stern, Shapiro, Weissberg & Garin, Thomas G. Shapiro, Shapiro Haber & Urmy, Patrick J. Sheehan, Whatley Drake & Kallas, Boston, MA, Patrick E. Geraghty, Geraghty, Dougherty & Edwards, P.A., Ft. Myers, FL, Michael M. Malinowski, Michael M. Malinowski, PLC, Grand Rapids, MI, Jordan L. Lurie, Leigh A. Parker, Zev B. Zysman, Weiss & Lurie, Los Angeles, CA, James R. Patterson, Harrison, Patterson & O'Connor, San Diego, CA, Ralph K. Phalen, Ralph K. Phalen, Kansas City, MO, John Michael Pickett, Young Pickett & Lee, Texarkana, TX, Eric M. Quetglas-Jordan, Quetglas Law, San Juan, PR, Louis Cooper Rutland, Jr., Rutland Law Firm, Springs, AL, Thomas M. Sobol, Hagens Berman Sobol Shapiro LLP, Cambridge, MA, John S. Steward, Burstein Law Firm P.C., Clayton, MO, John E. Suthers, John E. Suthers, Savannah, GA, for Plaintiffs.

Richard D. Batchelder Jr., Brian R. Blais, Mark Szpak, Harvey J. Wolkoff, Ropes & Gray LLP, James R. Carroll, Nicholas I. Leitzes, Skadden, Arps, Slate, Meagher & Flom, Seth C. Harrington, Douglas H. Meal, Ropes & Gray LLP, Boston, MA, Christopher P. Connors, Skadden, Arps, Slate, Meagher & Flom, Steven P. Mandell, Stephen J. Rosenfeld, Mandell Menkes & Surdyk LLC, Erich Paul, Schork Barnow and Assoc., PC, Chicago, IL, John E. Goodman, Michael R. Pennington, Michael F. Walker, Bradley, Arant, Rose & White LLP, North Birmingham, AL, Malcome A. Heinicke, Munger, Tolles & Olson, San Francisco, CA, Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom, Cary B. Lerman, TeriAnn E. Nagata, Munger, ToIles & Olson, Marcus R. Mumford, Skadden, Arps, Slate, Meagher & Flom, Los Angeles, CA, James C. Huckaby, Jr., Christian & Small, LLP, David G. Rymer Bradley, Arant, Rose & White, John W. Scott, Scott, Dukes & Geisler, PC, Birmingham, AL, Brant M. Laue, Kansas City, MO, C. Bradford Marsh, Swift, Currie, McGhee & Heirs, Atlanta, GA, Margaret Diane, Mathews Akerman, Tampa, FL, Harry Rosenberg, Phelps & Dunbar, LLP, New Orleans, LA, Richard J.J. Scarola, Alexander Zubatov, Scarola Ellis LLP, New York, NY, Robert N. Webner, Vorys Sater Seymour and Pease LLP, Columbus, OH, William Breck, Weigel Vorys, Sater, Seymour and Pease, LLP, Cincinnati, OH, for Defendants.

Margaret M. Pinkham, Paul W. Shaw, Brown Rudnick Berlack Israels LLP, Boston, MA, for Interested Party.

MEMORANDUM AND ORDER

YOUNG, District Judge.

I. THE MOTIONS TO AMEND

On October 25, 2007, Amerifirst and SELCO Community Credit Union (collectively, "Amerifirst") moved for leave to amend their consolidated class action complaint against Fifth Third Bank and Fifth Third Bancorp ("Fifth Third"). On that same date, Amerifirst, three bankers' associations, Eagle Bank, Saugusbank, and Collinsville Savings Society (collectively, the "issuing banks") sought leave to amend their consolidated class action complaint against TJX Companies, Inc. ("TJX").¹

The proposed amendments were virtually identical and had the primary objective of adding new theories of liability with regard to Fifth Third and TJX; one asserted a cause of action for conversion.² Amerifirst and the issuing banks based this claim on the premise that they have a "protectable property interest" in cardholder information and data, Proposed Fifth Third Am. Compl. [Doc. 201 Ex. 1] ¶¶ 121, 126; Proposed TJX Am. Compl. [Doc. 202 Ex. 1] ¶¶ 136, 140, and that "by failing to safeguard and by storing the cardholder information and data, [the defendants] knowingly and wrongfully exceeded [their] authorized use of the Plaintiff Banks' property and wrongfully exercised control and dominion over this property." Proposed Fifth Third Am, Compl. ¶ 124; Proposed TJX Am. Compl. ¶ 139. Amerifirst and the issuing banks argued that the authorized scope of the data's storage and retention is outlined by the Visa and MasterCard Card Operating Regulations and the Payment Card Industry Data Security Standards. Proposed Fifth Third Am. Compl. ¶¶ 122-124; Proposed TJX Am. Compl. ¶¶ 137-139.

Assuming for the purpose of this analysis that Amerifirst and the issuing banks have a protectable property interest in cardholder and account data, the nature of that property is intangible. At common law a plaintiff can recover for conversion only in cases involving tangible chattels. See Harvard Apparatus, Inc. v. Cowen, 130 F.Supp.2d 161, 164 (D.Mass.2001)(Bowler, M.J.) (noting the traditional scope of the common law tort of conversion). Entertaining the proposed conversion claim, therefore, would require the conclusion that Massachusetts would be amenable to the expansion of the scope of this tort.

In arguing that this is the case, Amerifirst and the issuing banks rely on a decision of the Court of Appeals of New York, Thyroff v. Nationwide Mutual Insurance Co., 8 N.Y.3d 283, 832 N.Y.S.2d 873, 864 N.E.2d 1272 (2007). Nationwide employed Thyroff as an insurance agent and leased him computer hardware and software. Thyroff then stored personal correspondence and documents, as well as business-related information, on that computer. Id. at 1273. When Nationwide terminated Thyroff, it repossessed Thyroff's computer system, denying Thyroff access to the personal information stored upon it. Id. Thyroff sued, asserting several causes of action including conversion. Id. The Second Circuit Court of Appeals certified the following question to the Court of Appeals of New York: "is a claim for conversion of electronic data cognizable under New York law?" Id. at 1273.

In answering, the Court of Appeals of New York noted that conversion has historically been limited to physical chattels. Id. at 1275-76. Nonetheless, the court "believe[d] that the tort of conversion must keep pace with the contemporary realities of widespread computer use." Id. at 1278. Because a document's method of creation—electronically or with quill and parchment—does not alter the value of the information it contains, the court concluded that "the protections of the law should apply equally to both forms—physical and virtual." Id. Thus, the court held that "electronic records that were stored on a computer and were indistinguishable from printed documents [are] subject to a claim of conversion in New York." Id.

Citing Quincy Cablesystems, Inc. v. Sully's Bar, Inc., 650 F.Supp. 838 (D.Mass. 1986) (Caffrey, S.J.), Amerifirst and the issuing banks argue that Massachusetts is predisposed to follow New York's lead and thus that the intangible nature of the property here does not render their claims futile. In Quincy, a cable system and a network brought suit against bars that were intercepting satellite signals and showing the network's programming to bar patrons without paying the subscription fee. Id. at 840. The court held that the cable system had a proprietary interest in the satellite signals insofar as it had paid the network for the exclusive right to carry the network's programming and that the cable system had the right to "possession of the transmissions." Id. at 848. As a result, the court ruled that the plaintiff's complaint stated a claim for conversion sufficient to survive a motion to dismiss. Id.

More recently, however, the District of Massachusetts has consistently noted that in Massachusetts "the general rule is that conversion ... relate[s] to interference with tangible rather than intangible property." John G. Danielson, Inc. v. Winchester-Conant Props., Inc., 186 F.Supp.2d 1, 28 (D.Mass.2002) (suggesting that Quincy is "contrary to the usual view of conversion"); see also Portfolioscope, Inc. v. I-Flex Solutions Ltd., 473 F.Supp.2d 252, 256 (D.Mass.2007) (Tauro, J.) (noting that conversion and replevin claims "require an allegation of wrongful possession of tangible property"); Jayson Assocs., Inc. v. United Parcel Serv. Co., 2004 WL 1576725, at *2 (D.Mass.2004) (Zobel, J.) ("[The defendant] properly asserts that a cause of action for conversion ... does not apply to intangible items."); Patricia Kennedy & Co. v. Zam-Cul Enterprises, Inc., 830 F.Supp. 53, 59 (D.Mass. 1993) (stating that a claim for conversion in Massachusetts requires an allegation that "personal tangible property" was taken by the defendant) (quoting Evergreen Marine Corp. v. Six Consignments of Frozen Scallops, 806 F.Supp. 291, 296 (D.Mass.1992)).

Furthermore, in the 21 years since Quincy, the courts of Massachusetts have declined to adopt its reasoning, instead adhering to a more traditional view of conversion.³ See, e.g., Export Lobster Co v. Bay State...