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USAA Federal Savings Bank v. PLS Financial Services, Inc.

United States District Court, N.D. Illinois, Eastern Division

May 30, 2017

USAA FEDERAL SAVINGS BANK, Plaintiff,
v.
PLS FINANCIAL SERVICES, INC., PLS GROUP, INC., and THE PAYDAY LOAN STORE OF ILLINOIS, INC., Defendants.

          OPINION AND ORDER

          SARA L.ELLIS, United States District Judge

         After Plaintiff USAA Federal Savings Bank ("USAA") lost over $3, 000, 000 in a fraudulent check cashing scheme, USAA filed suit against Defendants PLS Financial Services, Inc., PLS Group, Inc., and The Payday Loan Store of Illinois, Inc. (collectively, "PLS"), claiming PLS acted negligently in protecting USAA members' financial information so as to allow third parties to create fraudulent checks with that information, that PLS' negligence can be established based on the per se violation of various state and federal statutes, and that PLS violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815Ill.Comp.Stat. 505/1 et seq. PLS has moved to dismiss USAA's first amended complaint. Because no common law duty exists to safeguard personal information under Illinois law, the Court dismisses USAA's negligence claim. And because USAA effectively abandons its negligence per se claim in response to PLS' motion to dismiss, the Court dismisses that claim as well. Finally, the Court dismisses USAA's ICFA claim because USAA has not adequately alleged that the data breach affected its Illinois members or that the underlying unfair conduct took place primarily in Illinois.

         BACKGROUND[1]

         USAA provides banking services to members and veterans of the United States military. PLS, through the three individually named Defendants, provides check cashing and payday lending services at approximately 300 retail locations in eleven states, including Illinois. The individual Defendants share common directors, officers, and office locations, with centralized recordkeeping and computer systems, and have similar business practices. PLS is not a bank and does not provide bank accounts to its customers. Instead, PLS charges customers a fee to cash checks, obtain money orders, and use other financial services.

         In the course of doing business, PLS cashes checks drawn on USAA. In cashing these checks, as with any other checks, PLS obtains certain information about the drawer of the check and the bank on which the check is drawn from the face of the check, including the drawer's name, the check number, account number, bank routing number, drawer's signature, and MICR information.[2] PLS makes an electronic copy of the check before forwarding the check to the drawer's bank for payment.

         In October 2012, the United States and PLS agreed to settle a suit brought by the United States against PLS in which the United States alleged that PLS did not properly secure its customers' personal information. The stipulated final injunction required PLS to develop a comprehensive information security program to protect the security, confidentiality, and integrity of consumers' personal information, including consumers' names, addresses, and financial institution account numbers. PLS also agreed to take reasonable measures to protect against unauthorized access to or use of such information.

         Problems with unauthorized access to PLS customers' personal information continued, however. Specifically, an unidentified female PLS employee provided third parties with access to PLS' computer systems, which allowed these third parties to copy check images and produce counterfeit checks based off those images. The checks ranged from between $5 and $10, 000. The third parties then used these counterfeit checks, which included checks drawn on USAA, to obtain money through various schemes. The payor banks on the counterfeit checks, including USAA, ultimately bore the loss because the checks were unauthorized, meaning the members on whose accounts the checks were drawn could not be held liable for them. USAA has discovered over 2, 000 original checks from its members that were cashed at PLS and subsequently counterfeited, causing USAA to incur over $3, 000, 000 in damages.

         In October 2014, USAA notified PLS of the issue and requested help in coordinating an investigation into the counterfeiting. USAA indicated it had noticed most of the checks that were subsequently counterfeited had been cashed at PLS locations in Texas, Arizona, and California and subsequently deposited through a bank in Rosemont, Illinois. PLS responded that it would refer the matter to its general counsel.

         LEGAL STANDARD

         A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed.R.Civ.P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 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 to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

         ANALYSIS

         I. Negligence Claims

         A. Existence of a Duty

         To succeed on its negligence claim, USAA must establish that (1) PLS owed USAA a duty, (2) PLS breached that duty, and (3) PLS' breach proximately caused USAA injury. Rhodes v. Ill. Cent. Gulf R.R., 665 N.E.2d 1260, 1267, 172 Ill.2d 213, 216 Ill.Dec. 703 (1996). USAA contends that PLS owed USAA a general duty of reasonable care to avoid causing foreseeable harm to USAA and, more specifically, a duty to safeguard financial information. But PLS claims that no such duty exists under Illinois law. The existence of a ...


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