S.A. judge tosses proposed class-action suit against Rackspace
Rackspace gets San Antonio federal judge to toss proposed class-action suit over ransomware attack
Photo of Patrick Danner
Patrick Danner
,
Staff writer
May 19, 2023
Updated: May 19, 2023 4:41 p.m.
Comments
A San Antonio federal judge on Thursday sided with Rackspace Technology in granting a motion to dismiss a class-action lawsuit against the company over a December ransomware attack.
A San Antonio federal judge on Thursday sided with Rackspace Technology in granting a motion to dismiss a class-action lawsuit against the company over a December ransomware attack.
Rackspace Technology Inc. won’t have to face proposed class-action litigation in San Antonio over a December ransomware attack that hobbled the cloud computing company.
U.S. District Judge Xavier Rodriguez on Thursday sided with Rackspace in dismissing litigation that had been brought by 37 plaintiffs from across the U.S. who lost access to email and related data as a result of the attack. More than 30,000 customers were allegedly affected, the judge noted in his ruling.
Rodriguez granted Rackspace’s motion to compel the plaintiffs to pursue their claims individually in arbitration.
“We are pleased with the Court’s decision,” Casey Shilling, Rackspace’s chief marketing officer, said in an email Friday.
Whether the plaintiffs will proceed with their claims individually in arbitration couldn’t be determined. An attorney for the group didn’t respond to a request for comment.
Four proposed class-action lawsuits had been filed in San Antonio in the wake of the breach, which shut down Rackspace’s hosted Exchange email service and led it to exit the business. The cases were subsequently consolidated.
A BRUISING: Rackspace’s reputation taking a hit as response to ransomware attack falls short of customers' hopes
The judge agreed with Rackspace that the claims should be heard in private via arbitration because of a long-standing provision in the contracts the company’s customers agreed to when they renewed their email-hosting services.
The plaintiffs demanded a jury trial and made a few arguments why their claims should not be arbitrated — including that the issues fell outside the scope of the arbitration clause.
Rodriguez didn’t buy the arguments.
All hosted Exchange customers must agree to Rackspace’s governing terms, including a Master Services Agreement, to complete the transaction and begin using its services, the judge said in his 18-page ruling.
Rodriguez concluded that, under Texas law, the plaintiffs' continued use of the services before and through the security incident served as “sufficient evidence of their intent to be bound” by terms of the agreement from June 2022. The precise language of the arbitration provision has remained unchanged since 2019, he added.
The judge also shot down the plaintiffs’ argument that they agreed to arbitration under “economic duress” because shifting email platforms would have caused them significant hardship.
“Plaintiffs have failed to identify any ‘threat’ made by Rackspace or any reason to believe that they had 'no means of protection' against the arbitration provision,” Rodriguez said.
The plaintiffs also said the arbitration agreement was “procedurally unconscionable” because Rackspace had imposed the provision unilaterally, without notice or an opportunity to negotiate.
On that argument, Rodriguez ruled that plaintiffs cannot “plausibly claim to be unfairly surprised by an agreement to arbitrate that has been effective for over a decade.”
As to the plaintiffs' claim that arbitration would be “prohibitively expensive,” Rodriguez said that argument was “unavailing.” The American Arbitration Association filing fee of $200 for each individual would be more cost-effective than litigating each plaintiff’s claim individually in federal court, where the cost to file a lawsuit is $402, he said.
The plaintiffs were seeking damages and injunctive relief relating to the disruption of their email services, which they alleged resulted in the permanent loss of some communications and potential disclosure of sensitive information.
In a similar case brought against Rackspace by a Beverly Hills, Calif., law firm in Los Angeles federal court, both sides announced to the court last month that they had reached a confidential settlement. That case was dismissed Wednesday.
That apparently leaves just one remaining proposed class-action lawsuit. That was filed earlier this year against Rackspace in New York federal court. The company has until Wednesday to file its answer in the case.
The court actions didn’t seem to generate any positive momentum for Rackspace’s stock price. Shares dropped nearly a dime to close Friday at $1.13.
Photo of Patrick Danner
Patrick Danner
,
Staff writer
May 19, 2023
Updated: May 19, 2023 4:41 p.m.
Comments
A San Antonio federal judge on Thursday sided with Rackspace Technology in granting a motion to dismiss a class-action lawsuit against the company over a December ransomware attack.
A San Antonio federal judge on Thursday sided with Rackspace Technology in granting a motion to dismiss a class-action lawsuit against the company over a December ransomware attack.
Rackspace Technology Inc. won’t have to face proposed class-action litigation in San Antonio over a December ransomware attack that hobbled the cloud computing company.
U.S. District Judge Xavier Rodriguez on Thursday sided with Rackspace in dismissing litigation that had been brought by 37 plaintiffs from across the U.S. who lost access to email and related data as a result of the attack. More than 30,000 customers were allegedly affected, the judge noted in his ruling.
Rodriguez granted Rackspace’s motion to compel the plaintiffs to pursue their claims individually in arbitration.
“We are pleased with the Court’s decision,” Casey Shilling, Rackspace’s chief marketing officer, said in an email Friday.
Whether the plaintiffs will proceed with their claims individually in arbitration couldn’t be determined. An attorney for the group didn’t respond to a request for comment.
Four proposed class-action lawsuits had been filed in San Antonio in the wake of the breach, which shut down Rackspace’s hosted Exchange email service and led it to exit the business. The cases were subsequently consolidated.
A BRUISING: Rackspace’s reputation taking a hit as response to ransomware attack falls short of customers' hopes
The judge agreed with Rackspace that the claims should be heard in private via arbitration because of a long-standing provision in the contracts the company’s customers agreed to when they renewed their email-hosting services.
The plaintiffs demanded a jury trial and made a few arguments why their claims should not be arbitrated — including that the issues fell outside the scope of the arbitration clause.
Rodriguez didn’t buy the arguments.
All hosted Exchange customers must agree to Rackspace’s governing terms, including a Master Services Agreement, to complete the transaction and begin using its services, the judge said in his 18-page ruling.
Rodriguez concluded that, under Texas law, the plaintiffs' continued use of the services before and through the security incident served as “sufficient evidence of their intent to be bound” by terms of the agreement from June 2022. The precise language of the arbitration provision has remained unchanged since 2019, he added.
The judge also shot down the plaintiffs’ argument that they agreed to arbitration under “economic duress” because shifting email platforms would have caused them significant hardship.
“Plaintiffs have failed to identify any ‘threat’ made by Rackspace or any reason to believe that they had 'no means of protection' against the arbitration provision,” Rodriguez said.
The plaintiffs also said the arbitration agreement was “procedurally unconscionable” because Rackspace had imposed the provision unilaterally, without notice or an opportunity to negotiate.
On that argument, Rodriguez ruled that plaintiffs cannot “plausibly claim to be unfairly surprised by an agreement to arbitrate that has been effective for over a decade.”
As to the plaintiffs' claim that arbitration would be “prohibitively expensive,” Rodriguez said that argument was “unavailing.” The American Arbitration Association filing fee of $200 for each individual would be more cost-effective than litigating each plaintiff’s claim individually in federal court, where the cost to file a lawsuit is $402, he said.
The plaintiffs were seeking damages and injunctive relief relating to the disruption of their email services, which they alleged resulted in the permanent loss of some communications and potential disclosure of sensitive information.
In a similar case brought against Rackspace by a Beverly Hills, Calif., law firm in Los Angeles federal court, both sides announced to the court last month that they had reached a confidential settlement. That case was dismissed Wednesday.
That apparently leaves just one remaining proposed class-action lawsuit. That was filed earlier this year against Rackspace in New York federal court. The company has until Wednesday to file its answer in the case.
The court actions didn’t seem to generate any positive momentum for Rackspace’s stock price. Shares dropped nearly a dime to close Friday at $1.13.
