Federal Court Denies Government's Appeal Seeking to Kill OPM Hack Lawsuit

A federal appeals court has denied the Trump administration’s appeal seeking to quash a lawsuit brought against the government by current and former federal employees over its inability to protect their personal information. 

The Justice Department sought to have the entire U.S. Court of Appeals for the D.C. Circuit rehear the case after a panel of the court in June largely sided with two federal employee unions in granting them standing to sue the Office of Personnel Management and a federal contractor for their roles in the hacks that led to mass disclosures of personal records. The court denied the en banc hearing request on Monday, however, meaning the lawsuit can likely now proceed at the district court level. 

While the appeals court panel found the plaintiffs faced a plausible risk of future harm following the breaches, the Trump administration argued that risk was not substantial. Former and current federal employees caught up in the breach “could” become the victims of identity theft, the court ruled, but the government attorneys said it was “implausible” to assume they would.

The American Federation of Government Employees and the National Treasury Employees Union are seeking lifetime credit monitoring and identity theft protection for the 21.5 million affected individuals, and NTEU also sought to change the way OPM stores and protects personnel data. NTEU said its clients had a constitutional right to informational privacy and the government violated that right, though the appeals court panel rejected that argument. AFGE is seeking a remedy under the 1974 Privacy Act, including monetary damages from KeyPoint Government Solutions.

OPM disclosed two data breaches in 2015, one that exposed the personnel files of all current and former federal employees and another that released the personally identifiable information of all applicants for security clearances, as well as their families. OPM has said hackers stole Social Security numbers, birth dates, fingerprints and addresses, among other sensitive personal information.

In its initial ruling, the appeals court panel said it was concerned only with whether the plaintiffs could plausibly allege standing. In terms of potential damages, the court said it was focusing on “the risk of future identity theft.” The panel remanded the case back to district court, saying the charges were reasonable and the lower court—which initially dismissed the case for lack of standing—must hear the case on the merits. 

The appeals court’s denial of the government's request for a rehearing will now allow that process to move forward, unless the government or KeyPoint attempts to appeal the decision further to the Supreme Court. The Justice Department declined to comment on its next steps.

Trump administration lawyers argued the hackers responsible for the breach had an “espionage-related motive” rather than trying to exploit the victims’ credit, noting precedent requires plaintiffs to demonstrate attackers are “likely to use stolen data to commit fraud or identity theft” and not for some other purpose. They added the unions only demonstrated “sporadic and isolated episodes” of hack victims facing harm.  

The administration asked for a review, suggesting the court’s initial finding could set a dangerous precedent. 

“The panel majority effectively established a categorical rule that individuals bear a risk of future identity theft or fraud—and therefore have standing to sue—in the event of any cyberattack on a database that includes their personal information,” the government said, arguing that ruling required a review for the sake of “both for this massive litigation and for future suits.”

In a separate appeal, KeyPoint also accused the court of setting a far-reaching precedent that would end contractors’ immunity when conducting work on behalf of the government. KeyPoint argued such a reversal would lead to fewer vendors bidding for government business and companies charging prices to cover for potential liability. 

“This decision allows plaintiffs to nullify contractor immunity in this circuit simply by disparaging some aspect of a contractor’s performance that is not spelled out by the government step-by-step,” KeyPoint attorneys said. “To correct this error and avoid a circuit conflict that would impose massive costs on contractors and the government, this court should re-hear the decision en banc.”

Without elaborating on the details behind its decision, the appeals court made clear it did not find either argument convincing enough to rehear the case. 

Congress intervened to give hack victims 10 years of protections in a fiscal 2016 spending bill. OPM had offered the 21.5 million federal employees, contractors, applicants and family members affected by the breach involving security clearance files three years of a “suite of services,” including full service identity restoration support and victim recovery assistance, identity theft insurance, identity monitoring for minor children, continued credit monitoring and fraud monitoring services beyond credit files. The 4.2 million current and former federal workers affected by the initial hack of personnel data—most of whom were also impacted by the second breach—were originally offered just 18 months of credit monitoring and identity theft insurance.