Lit Alerts—September 2021

Insurance/Privacy: Fifth Circuit Says Insurer Must Defend $20 Million Data Hack Suit

Last month, the US Court of Appeals for the Fifth Circuit reversed a ruling that Landry's Inc.'s insurer did not have to defend the Houston-based hospitality chain in a $20 million data hack dispute with its credit card payment processor, Paymentech LLC, finding the policy's definition of “publication” can include making credit card information generally available.

In their contract dispute, Paymentech asserted Landry's was on the hook for $20 million in losses sustained by Visa and MasterCard due to Landry’s breaching an agreement to comply with security guidelines. The agreement required Landry's to cover any losses incurred by Paymentech.

In Landry’s coverage action against The Insurance Co. of the State of Pennsylvania (ICSOP), the US District Court for the Southern District of Texas found that the data breach did not result in publication of the credit card information of Landry's customers. It also found that Paymentech's suit focused on a breach of contract, not a violation of customers' rights to privacy, which would have been covered. For these reasons, the district court ruled that ICSOP had no duty to defend in Paymentech’s action.

The Court of Appeals reversed, finding the language in ICSOP’s policy suggested the "broadest possible definition" of publication. Four dictionaries, including Black's Law, defined the term as the act of making information publicly known or generally accessible: "Thus, if the underlying Paymentech litigation concerns any of these 'publications' — even merely 'exposing or presenting [information] to view’ — then the policy's capacious provision is satisfied."

Texas' "eight-corners rule," which involves comparing a policy's language to the allegations in an underlying complaint, also weighed in favor of ICSOP having a duty to defend: "Paymentech's alleged injuries arise from the violations of customers' rights to keep their credit card data private. Under the eight-corners rule, ICSOP must defend Landry's in the underlying Paymentech litigation," the court reasoned.

Some insurance coverage attorneys have predicted the ruling may encourage increased privacy litigation.

Discrimination / Section 230: Second Circuit Revisits Previous Ruling and Evaluates Discrimination Claim Against Internet Service Provider

This month, the US Court of Appeals for the Second Circuit again addressed a discrimination suit brought by a self-described “former homosexual” pastor against Vimeo, challenging the latter’s removal of various videos promoting sexual orientation change efforts (SOCE). The latest summary order replaces the Court of Appeals’ previous opinions from March and July 2021, which had affirmed the district court’s dismissal of the discrimination claim under Section 230 of the Communications Decency Act.

In this order, the Court of Appeals again affirmed the action’s dismissal, but abandoned its prior orders’ reliance on Section 230 finding instead that the plaintiffs had not sufficiently pleaded discriminatory intent by the video hosting platform. According to the operative pleading, the plaintiffs claimed their SOCE videos were removed because of the pastor’s “sexual orientation [as a former homosexual] and religion,” and pointed to other videos that remained on the video hosting platform regarding sexual orientation.

Indeed, “[a]n inference of discriminatory intent may be shown through a comparison to similarly situated persons not sharing a plaintiff’s protected characteristic who were treated preferentially.” But the Circuit ruled that the plaintiffs’ conclusory allegations, and remaining videos unrelated to SOCE, were insufficient to establish discriminatory intent by Vimeo, especially in light of Vimeo’s terms of service, which explicitly prohibit SOCE content.

Arbitration: Eleventh Circuit Strikes Motion to Vacate Where Party Failed to Substantively Oppose Prior Motion to Confirm

This month, in a matter of first impression, the US Court of Appeals for the Eleventh Circuit held that a district court did not abuse its discretion in striking a party’s motion to vacate an arbitration award as untimely after the party failed to substantively oppose an earlier-filed motion to confirm that award. In McLaurin v. Terminix Int’l Co., the plaintiffs sued Terminix for breach of contract. The case proceeded to arbitration and the arbitrator entered an award for the plaintiffs.

Two days later, the plaintiffs filed a complaint followed by a motion to confirm the award in US district court. Terminix responded with a non-substantive answer and an opposition arguing the motion to confirm was premature. Terminix later filed a substantive motion to vacate the arbitration award, after the opposition to the motion to confirm was due, but within three months from the arbitration award. The district court confirmed the arbitration award against Terminix and struck Terminix's motion to vacate as untimely.

The Eleventh Circuit held that “nothing in the [Federal Arbitration Act (FAA)] required [the plaintiffs] to wait to file their motion to confirm until after Terminix filed its motion to vacate, modify, or correct.” Furthermore, the Eleventh Circuit held that the district court did not err in declining to rule on the merits of the motion to vacate for two reasons. First, Terminix waived its FAA Section 10 and Section 11 arguments by not raising them in the opposition to the motion to confirm; and second, “Terminix's later-filed motion was moot in light of Terminix's failure to oppose the motion to confirm.”

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.