The Fourth Circuit's opinion last week in In re Marriott International, Inc., — F.4th —-, No. 21-1802 (4th Cir. Apr. 21, 2022), could prove useful to companies facing data breach class actions. Following a data breach of the Starwood guest reservation system, Marriott investors brought securities claims alleging that the purported failure to disclose vulnerabilities in Starwood's IT systems rendered certain public statements false or misleading.
For example, the investors argued that Marriott's statement that "the integrity and protection of customer, employee, and company data is critical to us as we use such data for business decisions and to maintain operational efficiency" was misleading because it gave the "impression that Marriott was securing and protecting the customer data acquired from Starwood." The district court rejected this argument after finding that the challenged statements "did not assign a quality to Marriott's cybersecurity that it did not have."
The Fourth Circuit affirmed. It rejected the investors' reliance on district court cases holding that statements describing the strength of security measures may be false if the measures are actually deficient because "Marriott made no such representation." Instead, the Fourth Circuit agreed with the district court that a statement about the importance a company places on data security is not a representation about the quality or effectiveness of its security measures. The Fourth Circuit also acknowledged that "[t]he fact that a company has suffered a security breach does not demonstrate that the company did not place significant emphasis on maintaining a high level of security." This case is an important precedent for dismissing complaints alleging false statements concerning data security.
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