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First Amended Consolidated Class Action Complaint

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MORGAN & MORGAN

COMPLEX LITIGATION GROUP

John A. Yanchunis (Admitted Pro Hac Vice)

201 N. Franklin Street, 7th Floor

Tampa, Florida 33602

Telephone: 813/223-5505

813/223-5402 (fax)

jyanchunis@ForThePeople.com

CASEY GERRY SCHENK

FRANCAVILLA BLATT & PENFIELD 

LLP

Gayle M. Blatt, SBN 122048

110 Laurel Street

San Diego, CA 92101

Telephone: 619/238-1811

619/544-9232 (fax)

gmb@cglaw.com

MILBERG LLP

Ariana J. Tadler (Admitted Pro Hac Vice)

One Pennsylvania Plaza

New York, NY 10119

Telephone: 212/594-5300

212/868-1229 (fax)

atadler@milberg.com

ROBBINS GELLER RUDMAN

& DOWD LLP

Stuart A. Davidson (Admitted Pro Hac 

Vice)

120 East Palmetto Park Road, Suite 500

Boca Raton, FL 33432

Telephone: 561/750-3000

561/750-3364 (fax)

sdavidson@rgrdlaw.com

LOCKRIDGE GRINDAL NAUEN 

P.L.L.P.

Karen Hanson Riebel (Admitted Pro Hac 

Vice)

100 Washington Ave. South, Suite 2200

Minneapolis, MN 55401

Telephone: 612/339-6900

612/339-0981 (fax)

khriebel@locklaw.com

Attorneys for Plaintiffs and the Class

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

IN RE: YAHOO! INC. CUSTOMER DATA 

SECURITY BREACH LITIGATION

CASE NO. 16-MD-02752-LHK

FIRST AMENDED CONSOLIDATED 

CLASS ACTION COMPLAINT 

JURY TRIAL DEMANDED

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TABLE OF CONTENTS

I. SUMMARY OF THE CASE.............................................................................1

II. JURISDICTION AND VENUE ........................................................................6

III. PARTIES ...........................................................................................................7

A. Class Representatives Who Signed up for Yahoo Services in the 

United States..........................................................................................7

B. Class Representatives for the Israel Class ...........................................11

C. Class Representative for the Small Business Users Class...................12

D. Class Representative for the Paid Users Class.....................................14

E. Defendants ...........................................................................................15

IV. FACTUAL BACKGROUND..........................................................................16

A. Yahoo Collects and Stores PII for its Own Financial Gain .................16

B. Yahoo’s Small Business Customers Depended on Defendants’ PII 

Security Practices.................................................................................19

C. PII is Very Valuable on the Black Market...........................................22

D. Yahoo Turns a Blind Eye to Gaping Holes in Its Security, Refusing to 

Upgrade After Repeated Intrusions and Negative Assessments..........25

E. Yahoo’s Inadequate Data Security Allows the Massive Breach of 1 

Billion User Accounts in 2013, Which Yahoo Then Fails to Disclose

..............................................................................................................31

F. Yahoo’s Security Is Breached Again and Again—in 2014, 2015, and 

2016—Yet Yahoo Still Does Not Alert Its Users................................34

G. Yahoo Reveals the 2014 Breach Years After It Happened..................43

H. More Than Three Years After the Fact, Yahoo Finally Acknowledges 

the 2013 Breach ...................................................................................46

I. Despite All of This, Yahoo Still Waits to Notify Users Affected by the 

Forged Cookie Breach .........................................................................48

J. The Full Extent of the Fallout from the Breaches is Not Yet Known .50

V. CLASS ACTION ALLEGATIONS ................................................................55

VI. CHOICE OF LAW ..........................................................................................61

VII. CLAIMS ALLEGED ON BEHALF OF ALL CLASSES...............................63

First Claim for Relief: Violation of California’s Unfair Competition Law 

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(“UCL”) – Unlawful Business Practice ...............................................63

Second Claim for Relief: Violation of California’s Unfair Competition Law 

(“UCL”) – Unfair Business Practice....................................................66

Third Claim for Relief: Deceit by Concealment — Cal. Civil Code §§ 1709, 

1710......................................................................................................70

Fourth Claim for Relief: Negligence ...............................................................72

Fifth Claim for Relief: Breach of Contract......................................................74

Sixth Claim for Relief: Breach of Implied Contracts ......................................79

Seventh Claim for Relief: Breach of the Implied Covenant of Good Faith and 

Fair Dealing .........................................................................................80

Eighth Claim for Relief: Declaratory Relief....................................................81

VIII. ADDITONAL CLAIMS ALLEGED ON BEHALF OF THE SMALL 

BUSINESS USERS CLASS ONLY..........................................................83

Ninth Claim for Relief: Violation of California’s Unfair Competition Law 

(“UCL”) – Fraudulent Business Practice.............................................83

Tenth Claim for Relief: Misrepresentation ......................................................85

IX. ADDITONAL CLAIMS ALLEGED ON BEHALF OF THE PAID USERS 

CLASS ONLY...........................................................................................87

Eleventh Claim for Relief: Violation of California’s Consumer Legal 

Remedies Act (“CLRA”).....................................................................87

X. ADDITONAL CLAIMS ALLEGED ON BEHALF OF THE CALIFORNIA 

SUBCLASS ONLY ...................................................................................90

Twelfth Claim for Relief: Violation of California’s Customer Records Act –

Inadequate Security..............................................................................90

Thirteenth Claim for Relief: Violation of California’s Customer Records Act –

Delayed Notification............................................................................92

XI. PRAYER FOR RELIEF ..................................................................................96

XII. JURY TRIAL DEMANDED...........................................................................97

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For their First Amended Consolidated Class Action Complaint, Plaintiffs Kimberly 

Heines, Hashmatullah Essar, Paul Dugas, Matthew Ridolfo, Deana Ridolfo, Yaniv Rivlin, 

Mali Granot, Brian Neff, and Andrew J. Mortensen, on behalf of themselves and all others 

similarly situated, allege the following against Defendant Yahoo! Inc. (“Yahoo”),1 and 

Plaintiff Brian Neff, on behalf of himself and all others similarly situated, alleges the 

following against Defendants Yahoo and Aabaco Small Business, LLC (“Aabaco”) 

(collectively with Yahoo, “Defendants”), based on personal knowledge as to Plaintiffs and 

Plaintiffs’ own acts and on information and belief as to all other matters based upon, inter 

alia, the investigation conducted by and through Plaintiffs’ undersigned counsel: 

SUMMARY OF THE CASE

1. Giant information service providers such as Google, Facebook, Microsoft, and 

Yahoo experience a consistent stream of attacks on their data security. Quickly identifying 

and documenting those attacks, stopping them, and crafting better security measures to 

prevent them in the future is a normal, expected part of the business – except in Yahoo’s 

case. Inexplicably turning a blind eye to this key aspect of its business, Yahoo did not just 

ignore security holes, it failed to set up the systems necessary to even detect or document 

them.

 

2.

 

1

 In June, 2017, Yahoo’s operating business was acquired by Verizon Communications 

Inc. (“Verizon”), with Yahoo continuing to exist as a wholly-owned subsidiary of Oath, Inc., 

a subsidiary of Verizon. In the event Yahoo is unable to satisfy any judgment entered in this 

case against it, and a successor entity is the proper defendant, plaintiffs will promptly move 

under Rule 25(c) to substitute Yahoo’s successor as a proper defendant, which may be done 

at any time, including after judgment. See Fed. Ins. Co. v. Laney, No. C 12-04708 WHA, 

2013 WL 3597309, at *2 (N.D. Cal. July 12, 2013) (noting that “Rule 25(c) has no time 

limit.”); Zest IP Holdings, LLC v. Implant Direct Mfg, LLC, No. 10CV0541-GPC-WVG, 

2013 WL 1626111, at *2 (S.D. Cal. Apr. 15, 2013) (“Rule 25(c) does not have a time limit, 

however, and joinder may occur at any point during litigation, even after judgment has been 

rendered.”).

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3.

 

But, Yahoo did not. Thus, Yahoo was breached again later in 2012, with attackers 

absconding with private information of more than 450,000 user accounts. 

4. Yahoo’s sheer recklessness with respect to data security led to predictable 

results. In September 2016, Yahoo rocked the technology world by disclosing that 

information was stolen from 500 million user accounts two years earlier in the then-largest 

known data breach in history (the “2014 Breach”). Only two months later, Yahoo again made 

headlines around the globe when it admitted to an even more massive breach—affecting 

upwards of 1 billion user accounts—that had occurred three years before Yahoo made the 

admission (the “2013 Breach”). 

5. In late 2017, the other shoe dropped. Yahoo admitted the 2013 Breach was 

even larger than originally disclosed—by a magnitude of three. All three billion Yahoo 

accounts then existing were breached in 2013, a fact that Yahoo falsely claims—as detailed 

herein—took more than four years to discover and disclose. 

6. Yahoo’s substandard security also permitted third parties to forge cookies, 

affecting approximately 32 million accounts between 2015 and 2016. Yahoo acknowledged 

the existence of the Forged Cookie Breach as early as November 2016, buried in the fine 

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print of an SEC filing, but delayed notifying affected consumers for several months. In fact, 

Yahoo waited until a few months into 2017 to begin notifying Yahoo users that they had 

been the victims of the “Forged Cookie Breach.”2 

7. During the 2013 and 2014 Breaches, hackers were able to take the names, 

email addresses, telephone numbers, birth dates, passwords, and security questions of Yahoo 

account holders. As a result, the hackers gained access to the contents of all breached Yahoo 

accounts and, thus, any private information contained within users’ emails, calendars, and 

contacts, including financial communications and records containing credit cards, retail 

accounts, banking, account passwords, IRS documents, and social security numbers from 

transactions conducted by email, in addition to other confidential and sensitive information. 

This compromised data is collectively referred to herein as “Personal Identifying 

Information” or “PII.” 

8. Despite the staggering magnitude of these breaches, Yahoo initially claimed 

that it did not discover the 2014 Breach or 2013 Breach until 2016. 

 

 

 

9.

 

2

 The 2013 Breach, 2014 Breach, and Forged Cookie Breach are collectively referred to as 

the “Yahoo Data Breaches” or “Data Breaches.”

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10. In its 2016 annual filing with the SEC, Yahoo admitted an independent 

investigation showed it had “contemporaneous knowledge” of the 2014 Breach, yet failed to 

“properly investigate[] and analyze[]” the breach, due in part to “failures in communication, 

management, inquiry and internal reporting” that led to a “lack of proper comprehension and 

handling” of the 2014 Breach.3 The 10-K provided additional details regarding Yahoo’s 

failures: 

Specifically, as of December 2014, the information security team 

understood that the attacker had exfiltrated copies of user database backup 

files containing the personal data of Yahoo users but it is unclear whether 

and to what extent such evidence of exfiltration was effectively 

communicated and understood outside the information security team. 

However, the Independent Committee did not conclude that there was an 

intentional suppression of relevant information. 

Nonetheless, the Committee found that the relevant legal team had 

sufficient information to warrant substantial further inquiry in 2014, and 

they did not sufficiently pursue it. As a result, the 2014 Security Incident 

was not properly investigated and analyzed at the time, and the Company 

was not adequately advised with respect to the legal and business risks 

associated with the 2014 Security Incident. The Independent Committee 

found that failures in communication, management, inquiry and internal 

reporting contributed to the lack of proper comprehension and handling of 

the 2014 Security Incident. The Independent Committee also found that 

the Audit and Finance Committee and the full Board were not adequately 

informed of the full severity, risks, and potential impacts of the 2014 

Security Incident and related matters. 4

 

11. Even more astoundingly, Yahoo did not begin to disclose the 2013 Breach—

the one involving all 3 billion accounts—until three years after it happened. Despite the 

wealth of evidence of ongoing security breaches and problems, Yahoo claims to have been 

totally unaware of this breach until being notified by law enforcement in 2016. Even after 

 

3

 Yahoo!, Inc. 2016 Form 10-K (March 1, 2017), p. 47, https://investor.yahoo.net 

/secfiling.cfm? filingID=1193125-17-65791&CIK= 1011006. 4 Id. 

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that, it took nearly another full year for Yahoo to disclose the true extent of the 2013 Breach, 

tripling its size. 

12. Restated in simple terms, Yahoo is claiming that in 2013 its data security 

measures and breach detection measures were so poor that hackers were able to access every 

single Yahoo account—roughly 3 billion—and exfiltrate users’ PII, and Yahoo never 

detected it. This is the biggest data breach in history, by far, and Yahoo purports to have 

known nothing about it until told by someone else. Someone who, unlike Yahoo, was not 

charged with protecting Yahoo’s stored information. 

13. To make matters worse, at the time of the 2013 Breach, Yahoo was still using 

an encryption technology called MD5, which at least five years earlier had been publicly 

discredited and deemed “cryptographically broken and unsuitable for further use.”5 So, 

identity thieves had three full years of unfettered access to the inadequately-encrypted PII of 

roughly 3 billion user accounts before Yahoo even began to notify its users that their PII had 

been compromised. 

14. Both the scope of these three massive data breaches and Yahoo’s baffling and 

unlawful delay in notification is unprecedented in the information technology world.

15. This First Amended Consolidated Class Action Complaint is filed on behalf of 

all persons in the United States and Israel, described more fully in the following sections, 

whose PII was compromised in the 2013, 2014, or Forged Cookie Breaches. The class 

representatives here have suffered actual harm, including, but not limited to, having false tax 

returns filed in their name, having credit card accounts fraudulently opened in their names, 

having fraudulent charges posted to their credit cards and bank accounts, having their 

government benefits stolen, and having spam and phishing emails sent constantly from their 

Yahoo addresses. The compromise of the Class members’ PII has also caused the Class 

members to pay for credit monitoring, account freezes, card and account replacements, and 

 5 Joseph Menn, Jim Finkle, & Dustin Volz, INSIGHT-Yahoo security problems a story of too 

little, too late, CNBC (Dec. 18, 2016, 5:09 PM), http://www.cnbc.com/2016/12/18/reutersamerica-insight-yahoo-security-problems-a-story-of-too-little-too-late.html.

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late fees for delayed payments. Class members have devoted and will continue to devote time 

and energy to recovering stolen funds (where possible), tracking and repairing damage to 

their credit reports and reputations, and monitoring and protecting their accounts. Plaintiffs 

and Class members are further damaged as their PII remains in Defendants’ possession, 

without adequate protection, and is also in the hands of those who obtained it for its 

commercial value, without Plaintiffs’ or Class members’ consent. Further, members of the 

Small Business Class and the Paid Users Class have lost the benefit of their bargain and 

purchased services they otherwise would not have, or paid more for supposedly secure 

services than they would have, had they known the truth regarding Defendants’ inadequate 

data security.

JURISDICTION AND VENUE

16. This Court has jurisdiction over this action pursuant to the Class Action 

Fairness Act (“CAFA”), 28 U.S.C. § 1332(d), because the aggregate amount in controversy 

exceeds $5,000,000, exclusive of interests and costs, there are more than 100 class members, 

and at least one class member is a citizen of a state different from Defendants and is a citizen 

of a foreign state. The Court also has supplemental jurisdiction over the state law claims 

pursuant to 28 U.S.C. § 1367. 

17. Venue is proper under 28 U.S.C. § 1391(c) because Defendants are 

corporations that do business in and are subject to personal jurisdiction in this District. Venue 

is also proper under 28 U.S.C. § 1391(b) based on the Transfer Order of the Judicial Panel on 

Multidistrict Litigation, ECF No. 62, and because a substantial part of the events or 

omissions giving rise to the claims in this action occurred in or emanated from this District, 

including the decisions made by Yahoo’s governance and management personnel that led to 

the breaches. Further, Yahoo’s and Aabaco’s terms of service governing users in the United 

States and Israel provide for California venue for all claims arising out of Plaintiffs’ 

relationship with Yahoo and/or Aabaco. 

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PARTIES

A. Class Representatives Who Signed up for Yahoo Services in the United States

18. Plaintiff Kimberly Heines is a resident and citizen of Magalia, California. Ms. 

Heines receives approximately $1,100 per month from Social Security Disability to meet her 

essential needs, including food and housing. Plaintiff Heines opened a Yahoo account nearly 

twenty years ago and used it for all of her online communications, including communications 

relating to her education, financial aid, employment, banking, healthcare, and personal 

finances. Plaintiff Heines’ Yahoo emails included PII and information relating to her account 

with Direct Express, the payment service through which she receives her Social Security 

Disability benefits. On February 4, 2015, Plaintiff Heines discovered that her entire monthly 

disability allowance had been stolen from her Direct Express account and used to purchase 

gift cards at Rite Aid (in the amounts of $513.58 and $507.10), and Walgreens (in the 

amount of $118.00). Plaintiff Heines had her Direct Express card in her possession at the 

time of the thefts and was away from home caring for a hospitalized relative, more than 600 

miles from where the thefts occurred. Because she had no other source of income, the theft 

put her in an extremely vulnerable and stressful situation in which she literally had to rely on 

the kindness of strangers to survive for two weeks. Plaintiff Heines is normally very 

conscientious about paying bills on time but the theft caused her to pay her rent and some 

utility bills late, which resulted in late fees of more than $30. Soon after the theft, Ms. Heines 

started receiving collection calls regarding debts she had not incurred. She also saw 

unfamiliar debts appearing on her credit report and her credit score suffered as a result. 

Plaintiff Heines filed a police report and spent over 40 hours talking to the police, the Social 

Security Administration, Direct Express, RiteAid, Walgreens, and others to have the funds 

restored to her Direct Express account and deal with other consequences of the data breach, 

the resulting theft, and the consequences of the theft. In or about September 2016, Plaintiff 

Heines received an email notice from Yahoo informing her that her Yahoo accounts and PII 

may have been compromised in the 2014 Breach. In addition to the damages detailed herein, 

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the Yahoo Data Breaches have caused Plaintiff Heines to be at substantial risk for further 

identity theft.

19. Plaintiff Hashmatullah Essar is a resident and citizen of Thornton, Colorado. 

Mr. Essar is a retail manager for a local bank and handles retail and banking accounts. 

Approximately 15 years ago, Mr. Essar opened two email accounts with Yahoo. Mr. Essar 

carefully read the Terms of Service before opening his email accounts and would not have 

opened them if he had any concerns about the security of Yahoo email. Mr. Essar used his 

Yahoo email accounts for all of his personal, financial, and business needs. More 

specifically, Plaintiff Essar transacted business, shopped online, sent personal messages, 

communicated with his accountant, received bank account statements, applied for jobs, 

secured a mortgage for his home, and refinanced that mortgage, through his Yahoo e-mail 

account. Plaintiff Essar first became concerned about the security of his Yahoo email 

accounts when he received phishing emails from a credit card company purporting to be 

affiliated with American Express, asking him to follow a link to log-in to his “Serve” 

account. Plaintiff Essar knew the email to be false because he did not have a “Serve” account 

through American Express. Subsequently, in October 2016, Mr. Essar received an email 

notice from Yahoo notifying him of the 2014 Breach, and informing him that his Yahoo 

accounts and PII may have been compromised. As a result of the breach notification, and 

concerned for his own and his family’s well-being, Plaintiff Essar signed up for a credit 

counseling class through his employer to learn how to limit, recognize, and respond to 

identity theft. In addition, as a direct result of the 2014 Breach, Mr. Essar signed up for and 

paid (and continues to pay) $35.98 per month for LifeLock credit monitoring service. 

Notwithstanding his attempts to limit the damage done to his credit and identity as a result of 

the 2014 Breach, Mr. Essar has suffered great harm as a result of the Breach. Plaintiff Essar 

not only lost years of email messages when several hundred simply vanished from his Yahoo 

account, he also experienced tax fraud in February 2017, when an unauthorized person 

fraudulently filed a tax return under his Social Security Number. Further, Mr. Essar was 

denied credit in March 2017 due to the identity theft he suffered as a result of the 2014 

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Breach, and freezes were placed on his credit. Because Plaintiff Essar is a United States 

citizen of Afghani descent, he worries that a terrorist sympathizer may steal his PII and may 

use it to commit crimes in his name, so much so that he suffers from extreme anxiety and has 

difficulty sleeping. Finally, the Yahoo Data Breaches have caused Plaintiff Essar to be at 

substantial risk for further identity theft.

20. Plaintiff Paul Dugas is a resident and citizen of San Diego, California. 

Plaintiff Dugas is a semi-retired real estate investor and banker. Mr. Dugas has opened four 

Yahoo accounts over approximately the last twenty years. He used his Yahoo accounts for 

his banking, investment accounts, business emails, and personal emails. Plaintiff Dugas’s 

2013 and 2014 business tax returns were compromised, and he is still attempting to resolve 

the matter. As a result, his business has had to pay penalties and otherwise has been 

financially penalized. In April 2016, Plaintiff Dugas was unable to file his personal tax return 

because the Internal Revenue Service stated that a tax return had already been filed under his 

Social Security Number. As a result of his inability to file a tax return in 2016, both of his 

college-aged daughters missed deadlines to submit the Free Application for Federal Student 

Aid (FAFSA). Because Plaintiff Dugas’ daughters were unable to file for FAFSA, he paid 

$5,000 tuition for one daughter and $4,000 room and board for the other—expenses that he 

would not have had to cover had his daughters been able to file for FAFSA, as they had in 

the past. Plaintiff Dugas also experienced numerous fraudulent charges on his personal and 

business Bank of America and Navy Federal Credit Union credit cards. He has had to replace 

his Bank of America credit card numerous times and his Navy Federal credit card once. 

Plaintiff Dugas has paid $30.00 to three different credit bureaus to freeze his accounts. In 

addition, Plaintiff Dugas paid extra fees and costs to his Certified Public Accountant to help 

sort out the tax return problems suffered as a result of the Breach. Finally, the Yahoo Data 

Breaches have caused Plaintiff Dugas to be at substantial risk for further identity theft.

21. Plaintiffs Matthew and Deana Ridolfo are a married couple and residents and 

citizens of Vineland, New Jersey. Plaintiff Deanna Ridolfo works with a public school 

system and Plaintiff Matthew Ridolfo is a mechanical designer for a local company. Both 

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Plaintiffs used their Yahoo accounts for nearly twenty years for general banking, credit card 

management and communications, a mortgage refinance, and communication with friends 

and family. In June 2016, Plaintiff Matthew Ridolfo used his Yahoo email account to send 

scanned copies of sensitive financial documents in order to refinance the couple’s home 

mortgage. Shortly thereafter, in December 2016, both Mr. and Mrs. Ridolfo received notice 

of the 2013 Breach. On January 4, 2017, Plaintiff Deana Ridolfo received a letter from 

Citibank informing her that Citibank was concerned that her Citibank card was fraudulently 

accessed. Since Plaintiff Deana Ridolfo had never opened a Citibank account, she 

immediately knew it was a fraudulent card. Mrs. Ridolfo contacted Citibank immediately and 

learned that cash advances and Uber charges were listed on the account that had been opened 

in her name. Citibank also informed her that a second Citibank account was recently applied 

for in her name, this one for a Sears branded credit card. As a result of the letter and 

information received from Citibank, the Ridolfos immediately obtained free credit reports 

through Experian. Plaintiff Deana Ridolfo learned that someone attempted to open an 

account at Barclay Bank, two accounts at Lowes, and a Walmart account in her name. 

Further, Mrs. Ridolfo learned that an American Express account was fraudulently opened in 

her name, and $900.00 had been charged on a fraudulently opened Target credit card. Mr. 

Ridolfo learned that a total of eleven credit card or bank accounts had been fraudulently 

opened or attempted to be opened during the month of December 2016 in his name through 

the following retailers and banks: Brooks Brothers, Brandsource, Citi Doublecash, Capital 

One, Walmart, Lowes, Sears Mastercard, TD Bank, Barclays Bank of Delaware, Santander 

Bank, and Banco Popular of Puerto Rico. In addition, fraudulent addresses were listed for the 

Ridolfos in Florida and Virginia. As a result of this significant fraud, both Plaintiffs Matthew 

and Deana Ridolfo were forced to individually call each bank to report the fraudulent 

accounts and charges, spending significant time talking with credit card fraud departments. 

22. Further, unauthorized persons hacked into the Ridolfos’ personal home phone 

line through Comcast and forwarded their home line phone calls to an unknown phone 

number. Plaintiffs Matthew and Deana Ridolfo made countless phone calls to credit card 

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companies, Experian, TransUnion, Equifax, Innovis, the Internal Revenue Department, the 

Department of Motor Vehicles, and the Social Security Administration to help protect their 

sensitive and confidential information. Further, the Ridolfos were forced to file police reports 

in New Jersey, Florida and Virginia to protect their identity. In addition, Plaintiffs Matthew 

and Deana Ridolfo purchased and enrolled in LifeLock to have help monitoring their credit 

and finances, expending approximately $30.00 per month each for a total of over $60.00 per 

month. Despite enrolling in a credit monitoring program, placing freezes on their credit, and 

individually notifying credit card companies and banks, an unauthorized person attempted to 

open another credit card account on January 31, 2017 in Plaintiff Deana Ridolfo’s name. On 

June 26, 2017, Deana and Matthew Ridolfo were contacted by the Miami-Dade State 

Attorney’s Office regarding the arrest of a parolee whom police later found to be in 

possession of a “journal” containing a list of approximately 200 names with additional 

personal identifying information next to each name. Among those listed, according to the 

State Attorney’s Office, were Matthew and Deana Ridolfo. Next to Matthew’s name was his 

Yahoo email address and Yahoo account password (used up until Yahoo prompted a 

password change following the breach announcements) as well as the Sears credit card 

number fraudulently opened in Mr. Ridolfo’s name. Next to Deana’s name was the Citibank 

credit card number also fraudulently opened in her name. Finally, the Yahoo Data Breaches 

have caused Plaintiffs Matthew and Deana Ridolfo to be at substantial risk for further 

identity theft.

B. Class Representatives for the Israel Class 

23. Plaintiff Yaniv Rivlin is a resident of Tel Aviv, Israel, and has dual Israeli and 

Canadian citizenship. Plaintiff Rivlin opened his Yahoo email account in Israel 

approximately ten years ago mainly for personal purposes, including banking, friends and 

family, credit card statements, and social security administration. Plaintiff Rivlin pays Yahoo 

annually $20.00 to have Yahoo emails received forwarded to another email account. Plaintiff 

Rivlin maintains a credit card on file with Yahoo to pay for the forwarding service. Plaintiff 

Rivlin was notified by Yahoo on December 20, 2016 that his Yahoo email account had been 

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breached. After the notification, Plaintiff Rivlin noticed an increase in unsolicited emails, 

including spam and advertisements. Plaintiff Rivlin also spent, and continues to spend, time 

and effort proactively changing username and passwords on many of his accounts to prevent 

fraud. In addition, the Yahoo Data Breaches have caused Plaintiff Rivlin to be at substantial 

risk for identity theft, if in fact his identity has not already been stolen.

24. Plaintiff Mali Granot is a resident and citizen of Raanana, Israel. Plaintiff 

Granot maintained a Yahoo email account, which she opened in Israel in the fall of 1998, for 

personal reasons, specifically to correspond with family, friends, and school. Plaintiff Granot 

was unexpectedly locked out of her Yahoo email account and unable to gain access. Plaintiff 

Granot eventually gained access to her Yahoo email account by answering security 

questions. However, once she opened her Yahoo email account, she received unsolicited 

pop-up chat requests and other unsolicited requests including for services that she had not 

requested but that someone had requested in her name using her Yahoo email account. In 

addition, the Yahoo Data Breaches have caused Plaintiff Granot to be at substantial risk for 

identity theft, if in fact her identity has not already been stolen.

C. Class Representative for the Small Business Users Class

25. Plaintiff Brian Neff is a citizen and resident of Texas. In September 2009, in 

connection with his online insurance agency business, he contracted with Yahoo for two 

services, Yahoo! Web Hosting for www.TheInsuranceSuite.com and Yahoo! Business Email, 

for which he paid Yahoo $13.94 every month from September 2009 through approximately 

June 2017. Before contracting with Yahoo for these services, Mr. Neff read the applicable 

Terms of Service and the website content regarding those services thoroughly and carefully 

and relied upon, among other provisions, Yahoo’s contractual commitments and 

representations that his PII would be secure. Between 2009 and the present, at various times, 

Plaintiff Neff used Defendants’ web hosting services in connection with another 54 websites, 

paying anywhere from $3.94 to $15.94 per month for each website. Prior to contracting with 

Yahoo or Aabaco for each of these websites, Mr. Neff reviewed the Terms of Service and 

website content for major changes, and each time he relied upon Yahoo’s or Aabaco’s 

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contractual commitments and representations that his PII would be secure. In addition, every 

time Yahoo or Aabaco made changes to the Terms of Service and notified him of same, Mr. 

Neff carefully reviewed the changes, and each time he relied upon Yahoo’s or Aabaco’s 

contractual commitments and representations that his PII would be secure.

26. On December 14, 2016, Plaintiff Neff received a notice from Yahoo 

informing him that hackers had stolen account information that he had provided to 

Defendants—information that “may have included names, email addresses, telephone 

numbers, dates of birth, hashed passwords [using outdated encryption] and, in some cases, 

encrypted or unencrypted security questions and answers.” In addition to losing the benefit of 

his bargain by paying, and overpaying, Yahoo thousands of dollars for services that subjected 

him to security breaches (damaging him in the full amount of those payments), Plaintiff Neff 

was also a victim of actual identity theft, which, upon information and belief, was caused by 

one or more of the Yahoo Data Breaches. In May 2015, Plaintiff Neff incurred fraudulent 

charges on his Capital One credit card and his Chase debit card, both of which were on file 

with Yahoo to pay for services connected with two of his websites, with Yahoo being the 

only company to which Plaintiff Neff had provided information about both accounts. In 

addition to these fraudulent charges, also in May 2015, an unauthorized credit card account 

in Plaintiff Neff’s name was opened at Credit One Bank, and unauthorized and fraudulent 

charges were made to that account in May and June 2015. Plaintiff Neff had to spend 

significant time and incurred expenses mitigating the harm to him from these security 

breaches and identity theft. As to both the Capital One and Chase cards, Plaintiff Neff had to 

make several phone calls to each to notify them of the fraudulent charges and to have the 

accounts frozen. Plaintiff Neff had to change passwords for both cards and he then had to 

wait two to four days to receive new cards from each. As to the Credit One Bank credit card 

opened in his name, Plaintiff Neff had to call the police department and file a police report, 

fill out an FTC affidavit, engage in multiple phone calls to Credit One over several weeks 

totaling multiple hours, and put together a package of materials for Credit One, which took 

hours, and which he sent to Credit One via Federal Express overnight delivery at a cost of 

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$11.87. In addition, at a time when Plaintiff Neff was trying to pre-qualify for a home 

mortgage, he learned that his credit reports contained negative information about over-limits 

and unpaid charges on the fraudulent Credit One Bank credit card. He had to write a demand 

letter to Credit One Bank to force it to contact Experian and TransUnion and have these 

negative items removed from his credit reports. Mr. Neff has never been notified that he was 

a victim of any other data breach.

27. Since these incidents, Plaintiff Neff has been reviewing reports from 

complimentary credit monitoring offered by all his credit cards which offer that 

complimentary service, reviewing daily updates from Credit Karma, and he has ordered and 

reviewed free annual reports from all three credit bureaus—all activities to which he has been 

required to devote many hours of time. Since he became aware of the inadequacy of 

Defendants’ online security, Plaintiff Neff stopped using the TheInsuranceSuite.com website, 

costing him many valuable leads, in the range of 2,500–3,000, for his insurance business. 

Further, Plaintiff Neff is in the process of migrating that website to a more secure provider. 

The cost to transfer Plaintiff Neff’s accounts and services currently with Defendants to a 

company with adequate security will be in excess of $10,000, due to the nature and capacity 

of his website and the cost to reestablish the high search engine placement he had earned 

over the last eight years, among other factors. Finally, the Yahoo Data Breaches have caused 

Plaintiff Neff to be at substantial risk for further identity theft.

D. Class Representative for the Paid Users Class

28. Plaintiff Andrew J. Mortensen is a resident and citizen of Dallas, 

Texas. Plaintiff Mortensen was a New Jersey, Oklahoma, and then Texas resident during the 

pendency of the 2013, 2014 and Forged Cookie Data Breaches. Plaintiff Mortensen has been 

a Texas resident since May 2014. Plaintiff Mortensen opened a Yahoo email account in or 

around 2004, has paid Yahoo for services since 2007, and has used his email account for both 

personal and business purposes. Plaintiff Mortensen has paid $19.95 per year for Yahoo's 

premium email service since December 2007. Plaintiff Mortensen received banking, credit 

card, investment account, business emails, personal emails, bill pay information, medical, 

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and automobile information in his Yahoo account. Plaintiff Mortensen regularly used his 

Yahoo email account to monitor and/or manage banking information, financial information, 

and online bill payments, as well as to communicate and share personal information with 

family and friends. Plaintiff Mortensen has experienced increased suspicious phone calls or 

emails, including spam calls once a week, and spam texts every two weeks. As a result of 

the Data Breaches, Plaintiff Mortensen was forced to expend approximately three hours of 

time and effort checking credit and opening accounts (and will be forced to expend additional 

time in the future), and has experienced anxiety as a result of the Data Breaches. Yahoo’s 

failure to timely and adequately notify its accountholders of the 2014 Data Breach put 

Plaintiff Mortensen at greater risk of identity theft and other fraud. In or about December 

2016, Plaintiff Mortensen received notice from defendant Yahoo that his PII had been 

compromised due to a data breach. Plaintiff Mortensen was not notified by Yahoo without 

unreasonable delay, and was injured as a result. 

E. Defendants

29. Yahoo is a Delaware corporation registered with the California Secretary of 

State, with its principal place of business and headquarters in Sunnyvale, California, located 

at 701 First Ave., Sunnyvale, CA 94089. In June, 2017, Yahoo, Inc. completed the sale of 

substantially all of its assets to Verizon. Yahoo continues to exist as a wholly-owned 

subsidiary of Oath, Inc., a subsidiary of Verizon. The remaining assets of Yahoo, Inc. were 

renamed Altaba.

6

30. Aabaco is a wholly owned and controlled subsidiary of Yahoo. Its 

headquarters and principal place of business are the same as Yahoo’s headquarters in 

Sunnyvale, California. Since November 2015, Aabaco has been the business entity that 

Yahoo uses to provide services to small business owners. Before that date, Yahoo provided 

the same services through one of its divisions, Yahoo Small Business. After the transition to 

Aabaco, Yahoo reassured its subscribers that the change was in name only, greeting them 

 6 See fn. 1.

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with the following account sign-in notice: “Yahoo Small Business is now Aabaco Small 

Business. Same Team. Same Passion to grow your business. Different name.”

31. At all relevant times, Aabaco has been the alter ego of Yahoo for its small 

business subscribers and has been wholly owned and managed by Yahoo. Yahoo and Aabaco 

are also joint venturers and are jointly responsible to small business customers for any 

wrongful acts carried out by Aabaco that are material to this suit. Finally, Aabaco is the 

successor in interest to the Yahoo Small Business division and is liable to small business 

customers, in addition to Yahoo, as the successor for any wrongdoing by that division before 

it was renamed Aabaco. 

FACTUAL BACKGROUND

A. Yahoo Collects and Stores PII for its Own Financial Gain

32. One of the web’s earliest pioneers, Yahoo was founded in 1994 as a directory 

of websites, but quickly developed into a source for searches, email, shopping, and news. 

Currently, its services attract at least one billion visitors per month. Yahoo sister sites include 

Flickr, Yahoo Finance, and Yahoo Fantasy Sports, among others.

33. Yahoo’s primary service is Yahoo Mail, one of the oldest email services. 

Many users have built their digital identities around Yahoo Mail, using the service for 

everything from their bank and stock trading accounts to photo albums and even medical 

information. Moreover, users not only use their Yahoo Mail accounts for private email 

communications, but they also use them as recovery and log-in credentialing points for 

accounts on many other websites. Yahoo allows anyone who is over the age of 12 to open a 

Yahoo account.

34. Yahoo also offers various online services to small businesses. Popular 

services include website hosting, which makes it easy for businesses to create and operate a 

business website, advertising for those businesses, and email services for communications 

between businesses and their customers. To obtain these services, small businesses or their 

owners have to set up accounts with Yahoo and/or Aabaco and provide credit card or debit 

card information for automatic monthly payments. Yahoo originally provided these services 

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through a division called Yahoo Small Business. Since November 2015, Yahoo has provided 

its small business services through its wholly owned subsidiary Aabaco. 

35. When users establish any of the above accounts with Defendants, users must 

provide Defendants with PII, which Defendants then electronically collect, store on, and 

route through its U.S.-based servers, a majority of which are located in California. And, in 

fact, Plaintiffs and Class members signed up for online Yahoo accounts and provided the 

required PII, including, in some cases, debit and credit card information, which, Defendants 

collected, stored, and routed through its U.S.-based servers. 

36. Plaintiffs and Class members signed up for online Yahoo accounts that 

required them to provide many different sorts of personal information, including, in some 

cases, debit and credit card information.

37. The “Privacy Center” portion of Yahoo’s website delineates the type of 

personal information it collects directly from its account holders.7 Yahoo’s Privacy Policy, 

which is incorporated by reference into the Terms of Service to which all users must agree 

when they create their accounts, explains8:

 7 Yahoo Privacy Center, Yahoo!, https://policies.yahoo.com/us/en/yahoo/privacy/index.htm

(last visited Apr. 5, 2017).

8 Yahoo’s Terms of Service for the years 2011-2016 are attached to this First Amended 

Consolidated Class Action Complaint as Exhibits 1 through 6, respectively. Yahoo’s Privacy 

Policies for those same years are attached as Exhibits 7-12, respectively.

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38. Yahoo also informs its account holders that it shares personal information 

provided by account registrants only under limited circumstances.

9

39. Each time Yahoo made changes to its Terms of Service, Plaintiffs and the 

members of the Class were required to accept the new Terms by way of a clickwrap 

agreement. Plaintiffs who did not accept the new Terms of Service would not be able to 

continue to use their Yahoo accounts.

40. At all times relevant herein, Yahoo represented and warranted to Plaintiffs and 

the Class members that its databases containing PII were secure and that customers’ PII 

would remain private. 

41. Yahoo made promises to Class members in its Privacy Policies, including10:

 9 Id.

10 See, e.g., Exh. 9, Yahoo! Privacy Policy – 2013. 

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42. In 2016, Yahoo updated its Privacy Policy to clarify the protections it 

provided in connection with data transfer11:

43. Yahoo made further guarantees on its “Security at Yahoo” page (hyperlinked 

from Yahoo’s Privacy Policy)12:

44. None of these representations were true.

B. Yahoo’s Small Business Customers Depended on Defendants’ PII Security 

Practices

45. Defendants Yahoo and Aabaco understand that online security is paramount to 

their Small Business customers and was and is highly material to their decision to use 

Defendants’ Small Business services. Defendants address these concerns in the advertising 

that Defendants present to all would-be customers exploring the Small Business services. All 

customers, including Plaintiff Neff, were exposed to and read these advertisements and 

explanations, which appear on the webpages all customers must use to sign-up for the 

services.

46. Defendants made similar representations about the importance of security on 

Aabaco’s website as they did for Yahoo’s main page: “We have physical, electronic, and 

 11 Exh. 12, Yahoo! Privacy Policy – 2016. 

12 Security at Yahoo, Yahoo!, 

https://policies.yahoo.com/us/en/yahoo/privacy/topics/security/index.htm (Attached as 

Exhibit 13). The current version of the “Security at Yahoo” page is attached as Exhibit 14.

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procedural safeguards that comply with federal regulations to protect your Personal 

Information.”13 This page is attached to this First Amended Consolidated Class Action 

Complaint as Exhibit 15.

47. For example, the current web hosting advertisement and explanations page 

assures that web hosting is safe and secure14:

48. The relationship between Defendants and Small Business Class Members is 

governed by Defendants’ Terms of Service, which incorporate by reference a number of 

other agreements including Defendants’ Privacy Policy (“Privacy Policy”). Throughout the 

relevant time, the Terms of Service was a “click-through” agreement. Each member of the 

Small Business Users Class, including Plaintiff Neff, prior to becoming a Small Business 

customer, was required to click a box stating that “I agree to the terms of service,” with terms 

of service being a live link page that would open when clicked.15

 13 Privacy Policy, Yahoo! Aabaco Small Business, 

https://www.aabacosmallbusiness.com/privacy-policy (last visited Apr 9, 2017).

14 Flexible hosting for your professional website, Yahoo! Aabaco Small Business, 

https://smallbusiness.yahoo.com/webhosting#reliable (last visited Apr. 12, 2017).

15 Account Creation and Login Page, Yahoo! Aabaco Small Business, 

https://login.luminate.com/

registration?.src=smbiz&.done=https%3A%2F%2F www.luminate.com (last visited Apr. 5, 

2017).

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49. The Terms of Service expressly refer to both Aabaco and Yahoo16:

50. The Privacy Policy has been updated over the years but, as relevant to this 

action, has always contained identical or substantively similar assurances that Defendants 

appropriately safeguard the PII entrusted to them.17 The Privacy Policy in effect throughout 

the relevant time represents that:

 16 Terms of Service, Yahoo! Aabaco Small Business, https://smallbusiness.yahoo.com/tos

(last visited Apr. 5, 2017).

17 Privacy Policy, Yahoo! Aabaco Small Business, 

https://www.aabacosmallbusiness.com/privacy-policy?updated=true (last visited Apr. 5, 

2017).

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51. In addition, the Privacy Policy represents that Defendants do not share PII 

except in the following delineated circumstances18:

52. As Plaintiff Neff and the members of the Small Business Users Class would 

discover in 2016, these material representations about security were false and misleading 

because Defendants failed to disclose that their Small Business services were not secure, and 

that the PII they would be entrusting to Defendants was not reasonably safeguarded.

53. Defendants collect and store tremendous amounts of PII, and use this 

information to maximize profits through targeted advertising and other means. Defendants 

also assure that they take user privacy and safeguarding of PII very seriously. The facts show 

otherwise.

C. PII is Very Valuable on the Black Market

54. The types of information compromised in the Yahoo Data Breaches are highly 

valuable to identity thieves. In addition to credit and debit card information, names, email 

addresses, recovery email accounts, telephone numbers, birthdates, passwords and security 

 18 Id.

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question answers can all be used to gain access to a variety of existing accounts and websites. 

Indeed, Plaintiffs and Class members have suffered a variety of consequences from the 

breaches, including forged credit applications, the opening of unauthorized credit card 

accounts, fake tax returns being filed under their names, fraudulent charges, email hacks, 

unauthorized access to payment accounts such as PayPal and Western Union, gift cards being 

generated from their accounts without their consent, and numerous other identity theft-related 

damages. 

55. Identity thieves can also use the PII to harm Plaintiffs and Class members 

through embarrassment, blackmail, or harassment in person or online, or to commit other 

types of fraud including obtaining ID cards or driver’s licenses, fraudulently obtaining tax 

returns and refunds, and obtaining government benefits. A Presidential Report on identity 

theft from 2008 states that:

In addition to the losses that result when identity thieves fraudulently open 

accounts or misuse existing accounts, . . . individual victims often suffer 

indirect financial costs, including the costs incurred in both civil litigation 

initiated by creditors and in overcoming the many obstacles they face in 

obtaining or retaining credit. Victims of non-financial identity theft, for 

example, health-related or criminal record fraud, face other types of harm 

and frustration. 

In addition to out-of-pocket expenses that can reach thousands of dollars 

for the victims of new account identity theft, and the emotional toll 

identity theft can take, some victims have to spend what can be a 

considerable amount of time to repair the damage caused by the identity 

thieves. Victims of new account identity theft, for example, must correct 

fraudulent information in their credit reports and monitor their reports for 

future inaccuracies, close existing bank accounts and open new ones, and 

dispute charges with individual creditors.19

 19 The President’s Identity Theft Task Force, Combating Identity Theft: A Strategic Plan, 

Federal Trade Commission, 11 (April 2007), 

http://www.ftc.gov/sites/default/files/documents/reports/

combating-identity-theft-strategic-plan/strategicplan.pdf.

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56. To put it into context, as demonstrated in the chart below, the 2013 Norton 

Report, based on one of the 

largest consumer cybercrime 

studies ever conducted, 

estimated that the global price 

tag of cybercrime was around 

$113 billion at that time, with 

the average cost per victim being 

$298 dollars. That number will 

no doubt increase exponentially 

after the massive Yahoo Data 

Breaches.

57. The problems associated with identity theft are exacerbated by the fact that 

many identity thieves will wait years before attempting to use the PII they have obtained. 

Indeed, in order to protect themselves, Class members will need to remain vigilant against 

unauthorized data use for years and decades to come. 

58. Once stolen, PII can be used in a number of different ways. One of the most 

common is that it is offered for sale on the “dark web,” a heavily encrypted part of the 

Internet that makes it difficult for authorities to detect the location or owners of a website. 

The dark web is not indexed by normal search engines such as Google and is only accessible 

using a Tor browser (or similar tool), which aims to conceal users’ identities and online 

activity. The dark web is notorious for hosting marketplaces selling illegal items such as 

weapons, drugs, and PII.20 Websites appear and disappear quickly, making it a very dynamic 

environment. 

 20 Brian Hamrick, The dark web: A trip into the underbelly of the internet, WLWT News 

(Feb. 9, 2017 8:51 PM), http://www.wlwt.com/article/the-dark-web-a-trip-into-theunderbelly-of-the-internet/8698419.

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59. Once someone buys PII, it is then used to gain access to different areas of the 

victim’s digital life, including bank accounts, social media, and credit card details. During 

that process, other sensitive data may be harvested from the victim’s accounts, as well as 

from those belonging to family, friends, and colleagues. 

60. In addition to PII, a hacked email account can be very valuable to cyber 

criminals. Since most online accounts require an email address not only as a username, but 

also as a way to verify accounts and reset passwords, a hacked email account could open up a 

number of other accounts to an attacker.21

61. As shown below, a hacked email account can be used to link to many other 

sources of information for an identity thief, including any purchase or account information 

found in the hacked email account.22

D. Yahoo Turns a Blind Eye to Gaping Holes in Its Security, Refusing to Upgrade 

After Repeated Intrusions and Negative Assessments 

62. Yahoo has a storied, unfortunate history of inadequate and outdated data 

security. For at least the last decade and a half, Yahoo has been repeatedly put on notice that 

its security measures were not up to par, leaving users’ PII at risk of theft. Rather than 

 21 Identity Theft and the Value of Your Personal Data, Trend Micro (Apr. 30, 2015), 

https://www.trendmicro.com/vinfo/us/security/news/online-privacy/identity-theft-and-thevalue-of-your-personal-data. 22 Brian Krebs, The Value of a Hacked Email Account, KrebsonSecurity (June 13, 2013, 3:14 

PM), https://krebsonsecurity.com/2013/06/the-value-of-a-hacked-email-account/.

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addressing the problems by upgrading its data security, Yahoo continued to use outdated 

security methods long after vulnerabilities were brought to Yahoo’s attention. Yahoo’s 

refusal to heed myriad warnings about its deficient data security, even after multiple 

breaches, created the environment that permitted unauthorized users to abscond with 

Plaintiffs and Class members’ PII. 

63. Yahoo’s systems have been vulnerable to a wide variety of attack methods. In 

2001, then-20-year-old hacker Adrian Lamo showed he could rewrite published articles on 

Yahoo! News without even having to enter a password.23

64.

65.

66.

Yahoo was among the companies whose systems were penetrated by Chinese hackers; 

 

23 Kevin Poulsen, Yahoo! News Hacked, SecurityFocus (Sept. 18, 2001), 

http://www.securityfocus.com/news/254.

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73.

 

74.

 

75.

76.

 

77. Also in 2012, Yahoo admitted that more than 450,000 user accounts were 

compromised through an SQL injection attack—with the passwords simply stored in plain 

text. This breach revealed that Yahoo apparently had failed to take even basic precautions to 

protect its customers’ data. Indeed, news outlets reported that “[s]ecurity experts were 

befuddled ... as to why a company as large as Yahoo would fail to cryptographically store 

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the passwords in its database. Instead, they were left in plain text, which means a hacker 

could easily read them.”24 

78. According to Marcus Carey, a security researcher at Rapid7, the 2012 hack 

showed Yahoo was far behind the times. “It is definitely poor security. It’s not even security 

101. It’s basic application development 101.”25 Indeed, the Federal Trade Commission 

considered SQL injection attacks a known—and preventable—threat as far back as 2003.26

79. The 2012 hack was meant—and should have served—as a “wake up call” to 

Yahoo that it had inadequate protections for users’ personal information. In fact, a message 

purportedly left by the hackers on the webpage where the information was dumped claimed 

as much:

We hope that the parties responsible for managing the security of this 

subdomain will take this as a wake-up call, and not as a threat ... There 

have been many security holes exploited in Web servers belonging to 

Yahoo! Inc. that have caused far greater damage than our disclosure. 

Please do not take them lightly.27

80. Yahoo should have immediately invested in security upgrades following the 

2012 hack, but instead 

it did the opposite. 

81.

 

24 Antone Gonsalves, Yahoo security breach shocks experts, CSO (July 12, 2012, 8:00 AM), 

http://www.csoonline.com/article/2131970/identity-theft-prevention/yahoo-security-breachshocks-experts.html. 25 Id.

26 In the Matter of Guess?, Inc., and Guess.com, Inc., FTC Matter No. 022 3260, 3 (Jul. 30, 

2003), available at

https://www.ftc.gov/sites/default/files/documents/cases/2003/08/guesscomp.pdf. 27 Doug Gross, Yahoo hacked, 450,000 passwords posted online, CNN (July 13, 2012, 9:31 

AM), http://www.cnn.com/2012/07/12/tech/web/yahoo-users-hacked/.

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82.

 

83.

84.

 

85.

 

86.

 

 

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87.

88.

89. Unfortunately, Yahoo’s culture actively discouraged emphasis on data 

security. For example, former Yahoo security staffers interviewed later told Reuters that 

requests made by Yahoo’s security team for new tools and features such as strengthened 

cryptography protections were, at times, rejected on the grounds that the requests would cost 

too much money, were too complicated, or were simply too low a priority.28

E. Yahoo’s Inadequate Data Security Allows the Massive Breach of 3 Billion User 

Accounts in 2013, Which Yahoo Then Fails to Disclose 

90. As an example of Yahoo’s refusal to keep abreast of cybersecurity issues, in 

the summer of 2013, Yahoo decided to finally abandon the use of a discredited technology 

for encrypting data known as MD5. MD5 was well known as a weak password protection 

method by hackers and security experts for years before the 2013 Breach. MD5 can be 

 

28 Reuters, Why Yahoo’s Security Problems Are a Story of Too Little, Too Late, FORTUNE

(Dec. 18, 2016), http://fortune.com/2016/12/19/yahoo-hack-cyber-security/.

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cracked more easily than other so-called “hashing” algorithms, which are mathematical 

functions that convert data into seemingly random character strings.29

91. In fact, five years before Yahoo finally took action, Carnegie Mellon 

University’s Software Engineering Institute issued a public warning to security professionals 

through a U.S. government-funded vulnerability alert system, stating that: MD5 “should be 

considered cryptographically broken and unsuitable for further use.”30

92. “MD5 was considered dead long before 2013,” said David Kennedy, chief 

executive of cyber firm TrustedSec. “Most companies were using more secure hashing 

algorithms by then.”31 Common techniques such as “salting” (adding a unique secret to the 

password) and “stretching” (repeating the hashing process over many times) hashed 

passwords makes them far harder for hackers to decode.32 Stronger hashing technology 

would have made it more difficult for the hackers to get into customer accounts after 

breaching Yahoo’s network, making the attack far less damaging, according to five former 

employees and outside security experts.33 But with MD5, there are vast indexes of these precomputed MD5 hashes—known as “rainbow tables”—freely available online that can be 

used to quickly crack a large percentage of any MD5 password list.34 In other words, since 

the formula for breaking MD5 encryption was known since 2010 or earlier, simple online 

tools could break even “salted” MD5 codes.

 29 Reuters, Why Yahoo’s Security Problems Are a Story of Too Little, Too Late, FORTUNE 

(Dec. 18, 2016), http://fortune.com/2016/12/19/yahoo-hack-cyber-security/. 30 Vulnerability Note VU#836068, Vulnerability Notes Database (Last revised Jan. 21, 

2009), https://www.kb.cert.org/vuls/id/836068.

31 Reuters, supra note 22.

32 Mark Stockley, Yahoo breach: I’ve closed my account because it used MD5 to hash my 

password, naked security (Dec. 15, 2016), 

https://nakedsecurity.sophos.com/2016/12/15/yahoo-breach-ive-closed-my-account-becauseit-uses-md5-to-hash-my-password/; Adam Bard, 3 Wrong Ways to Store a Password, 

adambard.com (July 11, 2013), https://adambard.com/blog/3-wrong-ways-to-store-apassword/. 33 Stockley, supra note 26; Bard, supra note 26. 

34Brian Krebs, My Yahoo Account Was Hacked! Now What?, KrebsonSecurity (Dec. 15, 

2016), https://krebsonsecurity.com/2016/12/my-yahoo-account-was-hacked-now-what/.

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93. So, when Yahoo finally got around to discontinuing MD5 in late summer of 

2013, its encryption was already years out-of-date. 

94. Yahoo’s failure to move away from MD5 in a timely fashion was indicative of 

systemic problems in Yahoo’s security operations. One cybersecurity expert said, “even by 

2013 anyone with half a clue in securing passwords already long ago knew that storing 

passwords in MD5 format was no longer acceptable and altogether braindead idea. It’s one of 

many reasons I’ve encouraged my friends and family to ditch Yahoo email for years.”35

95.

 

96. As a logical consequence of a highly reckless approach to security, Yahoo’s 

systems suffered a catastrophic breach in 2013, when hackers breached all then-existing 

Yahoo UDB accounts—approximately three billion—stealing the poorly encrypted 

passwords and other information in the biggest known data breach, by number of records 

breached, to date. To make matters worse, Yahoo has experienced other security breaches 

since the 2013 Breach occurred but before either the 2013 Breach or 2014 Breach was made 

public in 2016. For example, in late December 2013, hackers found an exploit targeting Java 

in Yahoo’s ad network, which affected primarily users in Europe and was infecting roughly 

27,000 computers per hour at the time of discovery.38

97. None of these intrusions or reports prompted Yahoo to comprehensively 

review and ameliorate its security protocols, allowing the 2014 Breach and the Forged 

Cookie Breach to occur soon thereafter. 

 

35 Id. 

38 Andrew Scurria, European Yahoo Users Victimized in Malware Attack, Law360 (Jan. 6, 

2014, 6:02 PM), https://www.law360.com/articles/498914/. 

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F. Yahoo’s Security Is Breached Again and Again—in 2014, 2015, and 2016—Yet 

Yahoo Still Does Not Alert Its Users

98.

 

99.

100.

 

101.

102.

 

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[ . . . ] 

 

 

 

 

 

 

 

 

 

 

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103.

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106.

107. Adding insult to injury, Yahoo made no disclosures to its users about the 

breach—no email warnings, no public notices, and no communications,

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The vast majority of users 

heard nothing for two full years while Yahoo sat on this information and sophisticated 

identity thieves had free run of Class members’ PII and any confidential information that 

could be acquired by using that PII. Defendants’ failure to take action and notify Class 

members also prevented unknowing Class members from taking action, thus leaving them 

even more vulnerable for a long period of time. 

108.

 

109.

110. Bob Lord became CISO at Yahoo in October 2015. 

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111.

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•

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114.

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115.

116.

 

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117. As so many glaring vulnerabilities persisted in Yahoo’s security, it is not at all 

surprising that, sometime in 2015–2016, Yahoo’s data security was breached yet again. This 

time, the attack involved “forged cookies,” text files that Yahoo places on user computers 

when they log in so that users do not need to log in each time they start a new session. 

Authentication cookies contain information about the user’s session with Yahoo, and these 

cookies can contain a great deal of information about the user, such as whether that user has 

already authenticated to the company’s servers.40

118. The attackers in this case, thought to be the same parties involved in the 2014 

Breach, were able to forge these authentication cookies, which granted them access to 

targeted accounts without needing to supply the account’s password. In addition, a forged 

cookie allowed the attackers to remain logged into the hacked accounts for weeks or 

indefinitely.

119. The Forged Cookie Breach appears to be related to the 2014 Breach because 

the hackers in the 2014 Breach used some of the data obtained in the 2014 Breach to then 

forge cookies, help others forge cookies, or use the cookies to gain actual access to specific 

accounts. Yahoo’s failure to notify its users of the 2014 Breach in a timely manner, as well as 

its failure to adequately harden its data security after the 2014 Breach directly allowed 

hackers to continue to infiltrate Yahoo’s databases into 2015 and 2016. 

120. Once again, there was no response from, or disclosure by, Yahoo.

121. Meanwhile, without having disclosed any of these breaches, Yahoo solicited 

offers to buy the company. Reportedly, Yahoo wanted the offers in by April 19, 2016.41

Yahoos’ failure to disclose the breaches while soliciting offers prevented a mass defection of 

Yahoo users who might otherwise have left Yahoo after finding out about the breaches, thus 

allowing Yahoo to artificially inflate its asking price.

 40 Krebs, supra note 28. 

41 David Goldman, Yahoo is for sale; bidders line up; Marissa Mayer is toast, CNN (Apr. 11, 

2016, 10:29 AM), http://money.cnn.com/2016/04/11/technology/yahoo-sale-marissa-mayer/.

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G. Yahoo Reveals the 2014 Breach Years After It Happened

122. In August 2016, a hacker identifying himself or herself as “peace_of_mind” 

posted for sale on the dark web the PII from 200 million Yahoo accounts. 

123. The Chief Intelligence Officer of Arizona cybersecurity company InfoArmor, 

who first spotted the massive database being offered for sale last August, told the New York 

Times in December 2016 that a geographically dispersed hacking group based in Eastern 

Europe managed to sell copies of the database to three buyers for $300,000 apiece months 

before Yahoo disclosed the 2014 Breach.42 

124. Yahoo responded to media inquiries about this by noting that it was “‘aware’ 

of the hacker’s claims, but ha[d] not confirmed nor denied the legitimacy of the data” offered 

for sale.43 

125.

 

42 Jordan Robertson, Stolen Yahoo Data Includes Government Employee Information, 

Bloomberg Technology (Dec. 14, 2016, 6:09 PM), 

https://www.bloomberg.com/news/articles/2016-12-15/stolen-yahoo-data-includesgovernment-employee-information; Lisa Vaas, Yahoo breach: your account is selling for 

pennies on the dark web, naked security (Dec. 20, 2016), 

https://nakedsecurity.sophos.com/2016/12/20/yahoo-breach-your-account-is-selling-forpennies-on-the-dark-web/. 43 Joseph Cox, Yahoo ‘Aware’ Hacker Is Advertising 200 Million Supposed Accounts on 

Dark Web, MOTHERBOARD (Aug. 1, 2016), http://motherboard.vice.com/read/yahoosupposed-data-breach-200-million-credentials-dark-web. 

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126. Finally, on September 22, 2016, more than 3 years after the largest breach (the 

2013 Breach), Yahoo publicly announced that the 2014 Breach had occurred. Yahoo said in a 

statement that “the account information may have included names, email addresses, 

telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in 

some cases, encrypted or unencrypted security questions and answers.”44 This announcement 

came just two months after Yahoo announced Verizon’s plan to acquire its operating assets, 

and just weeks after Yahoo reported to the SEC that it knew of no incidents of unauthorized 

access of personal data that might adversely affect the potential acquisition.45 

127. Matt Blaze, a 

cyber security expert and 

director of the Distributed 

Systems Lab at the University 

of Pennsylvania likened the 

2014 Breach to an “ecological 

disaster.” 

 

44 Yahoo Security Notice September 22, 2016, Yahoo! Help, https://help.yahoo.com/kb/ 

SLN28092.html (last visited Apr 9, 2017). 

45 Kurt R. Hunt, Timing Is Everything in Data Breach Investigations and Disclosures: Yahoo 

Breach, The National Law Review (Nov. 2, 2016), 

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128. Yahoo also claimed it did not uncover the 2014 Breach for two years, a claim 

met with immediate skepticism. A September 23, 2016 Financial Times report stated that 

“Yahoo CEO Marissa Mayer has known that Yahoo was investigating a serious data breach 

since July, but withheld the information from investors, regulators and acquirer Verizon until 

this week...”46 Only later would Yahoo concede it knew about the 2014 Breach at the time it 

took place.

129. In its 2016 10-K filing with the SEC, Yahoo admitted it had 

“contemporaneous knowledge” of the 2014 Breach, yet failed to “properly investigate[] and 

analyze[]” the breach, due in part to “failures in communication, management, inquiry and 

internal reporting” that led to a “lack of proper comprehension and handling” of the 2014 

Breach.47 Curiously, Yahoo did not disclose in its 10-K that both its CISO and General 

Counsel were two of the Yahoo executives who possessed that “contemporaneous 

knowledge.”

130. Yahoo had reason to keep any breach under wraps. It struggled for years to 

compete with more successful technology giants and has now completed a sale of its 

operating assets and businesses to Verizon for $4.48 billion. By intentionally failing to 

disclose the breach in a timely manner as required by law, Yahoo misled consumers into 

continuing to sign up for Yahoo services and products, thus providing Yahoo a continuing 

income stream and a better chance of finalizing a sale of the company to Verizon. 

131. Yahoo’s lack of timely, legally-mandated disclosure upset several United 

States senators. On September 27, 2016, after Yahoo’s belated disclosure of the 2014 

Breach, six senators sent Yahoo CEO Marissa Mayer the below letter, outlining several 

 46 Harriett Taylor, Yahoo CEO Mayer knew about data breach in July: Report, CNBC (Sept. 

23, 2016, 3:51 PM), http://www.cnbc.com/2016/09/23/yahoo-ceo-mayer-knew-about-databreach-in-july-report.html. 47 Yahoo!, Inc. Form 10-K, supra note 2, at 47.

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concerns. Particularly troubling to the senators was Yahoo’s failure to notify its users of the 

2014 Breach sooner:

132. The Plaintiffs and the Class are informed and believe that investigations by 

the Senate, the Department of Justice, and the Securities and Exchange Commission into 

Yahoo’s failure to disclose the breaches sooner remain ongoing. 

H. More Than Three Years After the Fact, Yahoo Finally Acknowledges the 2013 

Breach

133. On December 14, 2016, Yahoo finally admitted to the 2013 Breach, though it 

did not disclose the true scope at the time. Yahoo’s Chief Information Security Officer 

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posted the following under an announcement titled “Important Security Information for 

Yahoo Users”:

As we previously disclosed in November, law enforcement provided us 

with data files that a third party claimed was Yahoo user data. We 

analyzed this data with the assistance of outside forensic experts and 

found that it appears to be Yahoo user data. Based on further analysis of 

this data by the forensic experts, we believe an unauthorized third party, in 

August 2013, stole data associated with more than one billion user 

accounts. We have not been able to identify the intrusion associated with 

this theft.48

134. In the 2013 Breach, hackers obtained, among other things, class members’ 

Yahoo login (ID), Country Code, Recovery E-Mail (linked with the profile), Date of Birth 

(DOB), Hash of Password (MD5), and Cell phone number and ZIP code if they were 

provided by the user for password recovery.49 Although Yahoo asserts that the Breaches did 

not expose credit card data (and there is little reason at this point to give credence to that 

claim), the Breaches allowed criminals to obtain passwords and login information for Yahoo 

users’ entire accounts and, thus, obtain the actual content of users’ emails, calendars, and 

contacts. Consequently, any sensitive data or documents contained in those emails, 

calendars, and contacts could be compromised—not just credit card numbers, but bank 

account numbers, Social Security numbers, driver’s license numbers, passport information, 

birth certificates, deeds, mortgages, and contracts, to name just a few examples. 

135. Tyler Moffitt, senior threat research analyst at Webroot, said: “All of the data 

stolen, including emails, passwords and security questions, make a potent package for 

identify theft. The main email account has links to other online logins and the average user 

likely has password overlap with multiple accounts.”50

 48 Bob Lord, Important Security Information for Yahoo Users, Yahoo! Tumblr (Dec. 14, 

2016), https://yahoo.tumblr.com/post/154479236569/important-security-information-foryahoo-users. 49 InfoArmor: Yahoo Data Breach Investigation, InfoArmor (Sept. 28, 2016), 

https://www.infoarmor.com/infoarmor-yahoo-data-breach-investigation/. 50 Samuel Gibbs, Security experts: 'No one should have faith in Yahoo at this point', the 

guardian (Dec. 15, 2016, 7:29 AM), 

https://www.theguardian.com/technology/2016/dec/15/security-experts-yahoo-hack.

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136. Moffitt takes little comfort from Yahoo’s belated efforts to secure user 

accounts, stating, “These accounts have been compromised for years and the sheer number of 

them means they have already been a large source of identity theft. No one should have faith 

in Yahoo at this point.”51

137. One analyst, Jeff Williams, CTO of Contrast Security, characterized the 2013 

Breach as “the Exxon Valdez of security breaches.”52

138. In addition to catching the attention of the international media and several 

governments, these revelations caused Verizon, which was poised to buy Yahoo’s operating 

assets and businesses for $4.83 billion, to demand a $925 million discount on the purchase 

price. Ultimately, the parties agreed on a $350 million price reduction and an adjustment 

regarding the parties’ respective shares of liability and litigation costs.53

I. Despite All of This, Yahoo Still Waits to Notify Users Affected by the Forged 

Cookie Breach

139. Yahoo quietly divulged the Forged Cookie Breach in its 10-Q filing with the 

SEC filed November 9, 2016.54 While filed publicly, the two brief references in the 141-

page filing were overshadowed by the ongoing coverage of the 2014, and then 2013, 

Breaches. Yahoo failed to notify any affected users at that time. 

 51 Id.

52 James Rogers, Yahoo hack: The 'Exxon Valdez of security breaches', Fox News (Dec. 15, 

2016), http://www.foxnews.com/tech/2016/12/15/yahoo-hack-exxon-valdez-securitybreaches.html. 53 Michael Liedtke, Verizon asked for $925M discount for Yahoo data breaches, The Star 

(Mar. 13, 2017), https://www.thestar.com/business/2017/03/13/verizon-asked-for-925mdiscount-for-yahoo-data-breaches.html. 54 Yahoo!, Inc. 2016 Form 10-Q for quarterly period ended Sept. 30, 2016 (Nov. 9, 2016), at 

40, 69, https://investor.yahoo.net/secfiling.cfm?filingID=1193125-16-

764376&CIK=1011006. 

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140.

 

141.

142. Not until February 2017 did Yahoo begin notifying account holders that their 

email accounts may have been accessed without the need for a password resulting from the 

use of forged cookies. Yahoo admitted the Forged Cookie Breach was related to the 2014 

Breach.55 Yahoo’s notification informed affected users that “a forged cookie may have been 

used in 2015 or 2016 to access your account.”56

 

55 Mike Snider & Elizabeth Weise, Yahoo notifies users of 'forged cookie' breach, USA 

Today (Feb. 15, 2017, 3:59 PM), 

http://www.usatoday.com/story/tech/news/2017/02/15/yahoo-notifies-users-forged-cookiebreach/97955438/. 56 Id. 

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143. Yahoo claimed that, since discovering the breach, it had “invalidated the 

forged cookies and hardened [its] systems to secure them against similar attacks.”57 Yet, 

users affected by the Forged Cookie Breach were not notified until many months after Yahoo 

discovered it. 58 

144. Again, data security experts were aghast. One expert, Brian Krebs, saw the 

Forged Cookie Breach as yet more evidence that Yahoo’s online services are unusable59: 

J. The Full Extent of the Fallout from the Breaches is Not Yet Known 

145. Finally, on October 3, 2017, Yahoo/Oath announced that the 2013 Breach had 

affected every single user account then existing: approximately 3 billion accounts. 

146.

 it took months for Yahoo/Oath to determine 

that closer to three billion, not one billion, accounts had been compromised in 2013. 

 

57 Gareth Halfacree, Yahoo warning users of forged cookie account attacks, bit-tech (Feb. 17, 

2017), https://www.bit-tech.net/news/bits/2017/02/17/yahoo-warning-forged-cookies/1. 58 Michelle Castillo, Yahoo's new hack warning comes from a third breach, the company 

says, CNBC (Feb. 15, 2017, 1:38 PM), http://www.cnbc.com/2017/02/15/yahoo-sends-newwarning-to-customers-about-data-breach.html. 59 Krebs, supra note 28. 

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147. Unfortunately, for the victims of these Yahoo Data Breaches, their stolen 

information was still for sale on underground hacker forums as late as summer 2017, 

 Their PII will be indefinitely 

available to those who are willing to pay for it as evidenced by the multiple databases for sale 

online, as shown below: 

148. Making the situation for Class members even worse, Yahoo does not make it 

easy to delete user email accounts. Although the process may appear straightforward enough, 

users have to wait at least 90 days after requesting deletion for it to take effect. And even 

then, the account often remains active. For example, one user tried to delete his Yahoo 

account, waited 90 days and on the 91st day checked to see if the account was still active. 

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Unfortunately, and as confirmed by Yahoo, his act of trying to log in to make sure the 

account was inactive reset the 90-day clock.60 Other users have also noted that their accounts 

remained active long after the 90-day period even though they have not logged in.61

149. The Data Breaches have had internal effects at Yahoo as well. In Yahoo’s 10-

K filing with the SEC, Yahoo disclosed that an independent committee of Yahoo’s Board of 

Directors had investigated the Data Breaches and determined that Yahoo’s information 

security team knew, at a minimum, about the 2014 Breach and the Forged Cooke Breach as 

they were happening, but took no real action in the face of that knowledge.62

150. With this admission, Yahoo decided it needed a sacrificial lamb, and that 

person was Ronald Bell, Yahoo’s General Counsel. After the independent committee also 

determined that the Yahoo legal team “had sufficient information to warrant substantial 

further inquiry in 2014, and they did not sufficiently pursue it,” Bell allegedly “resigned” 

from his position. Yahoo’s 10-K notes that “no payments are being made to Mr. Bell in 

connection with his resignation.”63 In other words, he received no severance payment.

151. Analysts saw Bell’s resignation 

for what it was—a feeble attempt to create 

accountability by terminating someone who 

was not the policy-maker at Yahoo. Yahoo’s 

former head of media, Scott Moore, found the situation “ridiculous.” 

152. In addition, Yahoo’s board of directors, “[i]n response to the Independent 

Committee’s findings related to the 2014” breach, elected not to award CEO Marissa Mayer 

her 2016 cash bonus, and Mayer has supposedly “offered to forgo any equity award in 2017 

given that the 2014 Security Incident occurred during her tenure.”64

 60 Zack Whittaker, Deleting your Yahoo email account? Yeah, good luck with that, ZDNet 

(Feb. 17, 2017, 10:00 PM), http://www.zdnet.com/article/yahoo-not-deleting-email-accountssay-users/. 61 Id. 62 See Yahoo!, Inc. Form 10-K, supra note 2, at 46-47.

63 Id. at 47.

64 Id.

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153. The 2014 Breach and Forged Cookie Breach have since been attributed to two 

Russian FSB agents, a Russian hacker, and a Canadian hacker. A Justice Department 

spokesperson said of the breaches, “FSB officers used criminal hackers to gain information 

that clearly ... has intelligence value,” and “the criminal hackers used the opportunity to line 

their own pockets.”65

154. It appears that the 2014 Breach began with a “spear phishing” email campaign 

sent to upper-level Yahoo employees.66 One or more of these employees fell for the bait, and 

Yahoo’s data security was so lax, that this action was enough to hand over the proverbial 

keys to the kingdom.

155. The hackers then managed to infiltrate Yahoo’s UDB, a database containing 

PII about all Yahoo users, including account names, recovery email accounts and phone 

numbers, password challenge questions and answers, and the account “nonce,” a 

cryptographic value unique to the targeted victim account. The hackers then downloaded the 

contents of this database on to their own systems. The hackers also gained access to the 

AMT, a tool that allowed Yahoo to manage all aspects of its users’ accounts, including 

making, logging, and tracking changes in the account, such as password changes.67

156. With these tools, the hackers were able to target all kinds of sources, including 

specific personal targets and general searches such as credit card verification values (“cvv” 

numbers), and terms such as “credit card,” “amex,” “visa,” “mastercard,” “gift card,” and 

 65 Indictment, United States v. Dokuchaev et al. (Feb. 28, 2017), ¶¶ 22-23, 3:17-cr-00103, 

ECF No. 1; Del Quentin Wilbur & Paresh Dave, Justice Department charges Russian spies, 

hackers in massive Yahoo breach, Chicago Tribune (Mar. 15, 2017, 3:39 PM), 

http://www.chicagotribune.com/

news/nationworld/ct-russia-yahoo-hacks-20170315-story.html. 66 Indictment, supra note 65; see also Swati Khandelwal, Yahoo! Hack! How It Took Just 

One-Click to Execute Biggest Data Breach in History, The Hacker News (Mar. 15, 2017), 

https://thehackernews.com/2017/03/yahoo-data-breach-hack.html. 67 Indictment, supra note 65, ¶¶ 22-33; see also Martyn Williams, Inside the Russian hack of 

Yahoo: How they did it, CSO (March 16, 2017, 4:29 AM), 

http://www.csoonline.com/article/3180762/data-breach/inside-the-russian-hack-of-yahoohow-they-did-it.html.

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others.68 

157. The hackers also used the Yahoo UDB information to compromise related 

user accounts with cloud-based services like Apple and webmail providers like Google.69

158. Finally, the hackers were able to use the “nonces” to generate forged cookies 

so that they could gain continuous access to user accounts without having to re-enter 

password or other security information.70

159.

 

68 Indictment, supra note 65, ¶¶ 22-33. 

69 Id. 70 Id. 

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160. Although Yahoo claims to have plugged the leaks, any fix does not address 

the fact that Yahoo users’ PII is currently in the hands of these hackers, and other miscreants 

who have obtained Yahoo users’ PII by purchase or otherwise. Worse, to date, Yahoo claims 

it does not—and cannot—determine the root source of the 2013 Breach, 

 

CLASS ACTION ALLEGATIONS

161. Pursuant to Rule 23(b)(2), (b)(3) and (c)(4) of the Federal Rules of Civil 

Procedure, Plaintiffs, individually and on behalf of all others similarly situated, bring this 

lawsuit on behalf of themselves and as a class action on behalf of the following classes: 

A. The United States Class

All persons who registered for free Yahoo accounts in the United 

States and whose PII was accessed, compromised, or stolen from 

Yahoo in the 2013 Breach, the 2014 Breach, or the Forged Cookie 

Breach. 

B. The Small Business Users Class 

All persons who registered for Yahoo Small Business or Aabaco 

accounts in the United States and whose PII was accessed, 

compromised, or stolen from Yahoo or Aabaco in the 2013 Breach, 

the 2014 Breach, or the Forged Cookie Breach. 

C. The Israel Class

All persons who registered for Yahoo accounts in the country of 

Israel and whose PII was accessed, compromised, or stolen from 

Yahoo in the 2013 Breach, the 2014 Breach, or the Forged Cookie 

Breach.

D. The Paid Users Class

All persons who registered for paid Yahoo accounts (e.g., “adfree” accounts or other accounts requiring the user to pay money to 

Yahoo, but excluding Yahoo or Aabaco Small Business Accounts) 

in the United States and Israel and whose PII was accessed, 

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compromised, or stolen from Yahoo in the 2013 Breach, the 2014 

Breach, or the Forged Cookie Breach.

162. Collectively, all of the classes will be referred to herein as the “Class,” except 

where otherwise noted in order to differentiate them.

163. In addition, Plaintiffs Heines and Dugas bring this action on behalf of a 

California subclass defined as:

All persons in California who registered for Yahoo accounts and 

whose PII was accessed, compromised, or stolen from Yahoo in 

the 2013 Breach, the 2014 Breach, or the Forged Cookie Breach. 

164. Excluded from the Class are Defendants and any entities in which any 

Defendant or their subsidiaries or affiliates have a controlling interest, and Defendants’ 

officers, agents, and employees. Also excluded from the Class are the judge assigned to this 

action, and any member of the judge’s immediate family.

165. Numerosity: The members of each Class are so numerous that joinder of all 

members of any Class would be impracticable. Plaintiffs reasonably believe that Class 

members number hundreds of millions of people or more in the aggregate and well over 

1,000 in the smallest of the classes. The names and addresses of Class members are 

identifiable through documents maintained by Defendants.

166. Commonality and Predominance: This action involves common questions 

of law or fact, which predominate over any questions affecting individual Class members, 

including:

i. Whether Defendants represented to the Class that they would safeguard 

Class members’ PII; 

ii. Whether Defendants owed a legal duty to Plaintiffs and the Class to 

exercise due care in collecting, storing, and safeguarding their PII;

iii. Whether Defendants breached a legal duty to Plaintiffs and the Class to 

exercise due care in collecting, storing, and safeguarding their PII;

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iv. Whether Class members’ PII was accessed, compromised, or stolen in the 

2013 Breach;

v. Whether Class members’ PII was accessed, compromised, or stolen in the 

2014 Breach; 

vi. Whether Class members’ PII was accessed, compromised, or stolen in the 

Forged Cookie Breach; 

vii. Whether Defendants knew about any or all of the Breaches before they 

were announced to the public and failed to timely notify the public of 

those Breaches;

viii. Whether Defendants’ conduct violated Cal. Civ. Code § 1750, et seq.;

ix. Whether Defendants’ conduct was an unlawful or unfair business practice

under Cal. Bus. & Prof. Code § 17200, et seq.;

x. Whether Defendants’ conduct violated the Consumer Records Act, Cal. 

Civ. Code § 1798.80 et seq.;

xi. Whether Defendants’ conduct violated the Online Privacy Protection Act, 

Cal. Bus. & Prof. Code § 22575, et seq.,

xii. Whether Defendants’ conduct violated § 5 of the Federal Trade 

Commission Act, 15 U.S.C. § 45, et seq.,

xiii. Whether Plaintiffs and the Class are entitled to equitable relief, including, 

but not limited to, injunctive relief and restitution; and

xiv. Whether Plaintiffs and the other Class members are entitled to actual, 

statutory, or other forms of damages, and other monetary relief.

167. Defendants engaged in a common course of conduct giving rise to the legal 

rights sought to be enforced by Plaintiffs individually and on behalf of the members of their 

respective classes. Similar or identical statutory and common law violations, business 

practices, and injuries are involved. Individual questions, if any, pale by comparison, in both 

quantity and quality, to the numerous common questions that dominate this action.

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168. Typicality: Plaintiffs’ claims are typical of the claims of the other members of 

their respective classes because, among other things, Plaintiffs and the other class members 

were injured through the substantially uniform misconduct by Defendants. Plaintiffs are 

advancing the same claims and legal theories on behalf of themselves and all other Class 

members, and there are no defenses that are unique to Plaintiffs. The claims of Plaintiffs and 

those of other Class members arise from the same operative facts and are based on the same 

legal theories.

169. Adequacy of Representation: Plaintiffs are adequate representatives of the 

classes because their interests do not conflict with the interests of the other Class members 

they seek to represent; they have retained counsel competent and experienced in complex 

class action litigation and Plaintiffs will prosecute this action vigorously. The Class 

members’ interests will be fairly and adequately protected by Plaintiffs and their counsel.

170. Superiority: A class action is superior to any other available means for the 

fair and efficient adjudication of this controversy, and no unusual difficulties are likely to be 

encountered in the management of this matter as a class action. The damages, harm, or other 

financial detriment suffered individually by Plaintiffs and the other members of their 

respective classes are relatively small compared to the burden and expense that would be 

required to litigate their claims on an individual basis against Defendants, making it 

impracticable for Class members to individually seek redress for Defendants’ wrongful 

conduct. Even if Class members could afford individual litigation, the court system could 

not. Individualized litigation would create a potential for inconsistent or contradictory 

judgments, and increase the delay and expense to all parties and the court system. By 

contrast, the class action device presents far fewer management difficulties and provides the 

benefits of single adjudication, economies of scale, and comprehensive supervision by a 

single court.

171. Further, Defendants have acted or refused to act on grounds generally 

applicable to the Class and, accordingly, final injunctive or corresponding declaratory relief 

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with regard to the members of the Class as a whole is appropriate under Rule 23(b)(2) of the 

Federal Rules of Civil Procedure.

172. Likewise, particular issues under Rule 23(c)(4) are appropriate for 

certification because such claims present only particular, common issues, the resolution of 

which would advance the disposition of this matter and the parties’ interests therein. Such 

particular issues include, but are not limited to:

a. Whether Class members’ PII was accessed, compromised, or stolen in the 

2013 Breach; 

b. Whether Class members’ PII was accessed, compromised, or stolen in the 

2014 Breach; 

c. Whether Class members’ PII was accessed, compromised, or stolen in the 

Forged Cookie Breach; 

d. Whether (and when) Defendants knew about any or all of the Breaches before 

they were announced to the public and whether Defendants failed to timely 

notify the public of those Breaches; 

e. Whether Defendants’ conduct was an unlawful or unfair business practice 

under Cal. Bus. & Prof. Code § 17200, et seq.;

f. Whether Defendants’ representations that they would secure and protect the 

PII and financial information of Plaintiffs and members of the classes were 

facts that reasonable persons could be expected to rely upon when deciding 

whether to use Defendants’ services; 

g. Whether Defendants misrepresented the safety of their many systems and 

services, specifically the security thereof, and their ability to safely store 

Plaintiffs’ and Class members’ PII; 

h. Whether Defendants concealed crucial information about their inadequate data 

security measures from Plaintiffs and the Class;

i. Whether Defendants failed to comply with their own policies and applicable 

laws, regulations, and industry standards relating to data security; 

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j. Whether Plaintiffs and class members in the Paid User Class are consumers 

within the meaning of Cal. Civ. Code § 1761(d); 

k. Whether Defendants’ acts, omissions, misrepresentations, and practices were 

and are likely to deceive consumers; 

l. Whether Defendants knew or should have known that they did not employ 

reasonable measures to keep Plaintiffs’ and Class members’ PII or financial 

information secure and prevent the loss or misuse of that information; 

m. Whether Defendants failed to “implement and maintain reasonable security 

procedures and practices” for Plaintiffs’ and Class members’ PII in violation 

of California Civil Code section 1798.81.5, subdivision (b) and Section 5 of 

the FTC Act; 

n. Whether Defendants failed to provide timely notice of the 2013 Breach, the 

2014 Breach, or the Forged Cookie Breach to Plaintiffs and Class members in 

violation of California Civil Code § 1798.82; 

o. Whether Defendants’ conduct violated Cal. Bus. & Prof. Code § 22575, et 

seq.;

p. Whether Defendants owed a duty to Plaintiffs and the Class to safeguard their 

PII and to implement adequate data security measures;

q. Whether Defendants breached that duty;

r. Whether Defendants operate a commercial website or online service that 

collects personally identifiable information through the Internet about 

individual consumers residing in California, and elsewhere, who use or visit 

its commercial Web site or online services, within the meaning of California 

Business and Professions Code § 22575(a); 

s. Whether Defendants failed to adhere to their posted privacy policy concerning 

the care they would take to safeguard Plaintiffs’ and Class members’ PII in 

violation of California Business and Professions Code § 22576; 

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t. Whether Defendants negligently and materially failed to adhere to their posted 

privacy policy with respect to the extent of their disclosure of users’ data, in 

violation of California Business and Professions Code § 22576; 

u. Whether a contract existed between Defendants and Plaintiffs and the Class 

members, and the terms of that contract; 

v. Whether Defendants breached the contract by having inadequate safeguards; 

w. Whether an implied contract existed between Defendants and Plaintiffs and 

the Class members and the terms of that implied contract; 

x. Whether Defendants breached the implied contract; 

y. Whether Defendants violated the covenant of good faith and fair dealing 

implicit in such contract; 

z. Whether Defendants made representations regarding the supposed secure 

nature of their small business services; 

aa. Whether such representations were false with regard to storing and 

safeguarding Class members’ PII; and

bb. Whether such representations were material with regard to storing and 

safeguarding Class members’ PII. 

CHOICE OF LAW

173. Members of the United States and Paid User Classes, all of whom registered 

for Yahoo accounts in the United States, were required as a condition of using Yahoo’s 

services to agree to Yahoo’s Terms of Service. This was a “clickwrap” agreement where 

members of the United States and Paid User Classes had to affirmatively accept the Terms.

174. Among other provisions, Yahoo’s Terms of Service for the United States and 

Paid User Classes have a forum selection clause and choice of law clause. The pertinent 

language reads:

The Agreement and the relationship between You and the Company shall 

be governed by the laws of the State of California without regard to 

its conflict of law provisions, and specifically excluding from application 

to this Agreement that law known as the United Nations Convention on 

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the International Sale of Goods. You and the Company agree to submit to 

the personal jurisdiction of the courts located within the county of Santa 

Clara, California. The failure of the Company to exercise or enforce any 

right or provision of this Agreement shall not constitute a waiver of such 

right or provision. 

175. In accordance with the choice of law provision, Yahoo has stipulated that 

California common law and statutory law applies to all claims by members of the United 

States and Paid User Classes as residents of the United States.

176. Members of the Small Business Users Class, all of whom registered for 

Yahoo Small Business or Aabaco accounts in the United States, were also required as a 

condition of using those services to agree to Terms of Service. This, too, was a “clickwrap” 

agreement where members of the United States Class had to affirmatively accept the Terms.

177. Among other provisions, Aabaco’s Terms of Service have a forum selection 

clause and choice of law clause. The pertinent language reads:

CHOICE OF LAW AND FORUM (LOCATION OF LAWSUIT) 

The Agreement and the relationship between You and the Company shall 

be governed by the laws of the State of California without regard to its 

conflict of law provisions, and specifically excluding from application to 

this Agreement that law known as the United Nations Convention on the 

International Sale of Goods. You and the Company agree to submit to the 

personal jurisdiction of the courts located within the county of Santa 

Clara, California.

178. The members of the Israel Class agreed to Yahoo’s Terms of Service for

Israel, which provide that:

If you are using...Israeli (il) Services, you are contracting with Yahoo! 

Inc., 701 First Avenue, Sunnyvale, CA 94089 to provide you with the 

Services and the substantive law of the State of California governs the 

interpretation of this ATOS [] and applies to all claims related to it, 

regardless of the conflict of laws principles. You and Yahoo! Inc., 

irrevocably consent to the exclusive jurisdiction and venue of the state 

courts located in Santa Clara County, California or in the Federal Courts 

located in the Northern District of California, USA for all disputes arising 

out of or relating to this ATOS or arising out of or relating to the 

relationship between you and Yahoo regardless of the type of claim.

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179. Moreover, because Defendants are headquartered in California and all of their 

key decisions and operations emanate from California, California law can and should apply 

to claims relating to the Yahoo Data Breaches, even those made by persons who reside 

outside of California. In fact, California law should apply to all Plaintiffs’ claims, as 

Defendants’ decisions and substandard acts happened in California, and upon information 

and belief, the Plaintiffs’ PII was collected, stored on, and routed through California, and 

United States-based servers. For the sake of fairness and efficiency, California law should 

apply to these claims.

CLAIMS ALLEGED ON BEHALF OF ALL CLASSES

First Claim for Relief

Violation of California’s Unfair Competition Law (“UCL”) – Unlawful Business 

Practice

(Cal. Bus. & Prof. Code § 17200, et seq.)

180. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

181. By reason of the conduct alleged herein, Defendants engaged in unlawful 

practices within the meaning of the UCL. The conduct alleged herein is a “business practice” 

within the meaning of the UCL.

182. Since November 2015, Aabaco, a wholly owned and controlled subsidiary of 

Yahoo has been the business entity that Yahoo uses to provide services to small business 

owners. Aabaco is the successor in interest to the Yahoo Small Business division and is liable 

as the successor for any wrongdoing by that division before it was dissolved by Yahoo and 

re-named Aabaco. At all times herein relevant since November 2015, Aabaco has been the 

alter ego of Yahoo for its small business services.

183. Defendants stored the PII of Plaintiffs and members of their respective 

Classes in Defendants’ electronic and consumer information databases. Defendants falsely 

represented to Plaintiffs and members of the Classes that their PII databases were secure and 

that class members’ PII would remain private. Defendants misleadingly represented that they 

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had “physical, electronic, and procedural safeguards that comply with federal regulations to 

protect personal information about you.”71 Yahoo further misrepresented that it “deploy[ed] 

industry standard physical, technical, and procedural safeguards that comply with relevant 

regulations to protect [Class members’] personal information” Defendants knew or should 

have known they did not employ reasonable, industry standard, and appropriate security 

measures that complied “with federal regulations” and that would have kept Plaintiffs’ and 

the other Class members’ PII and financial information secure and prevented the loss or 

misuse of Plaintiffs’ and the other class members’ PII and financial information. Indeed, at 

the time of the 2013 Breach, Yahoo’s data encryption protocol, known as MD5, was widely 

discredited and had been proven, many years prior, easy to break. Additionally, Yahoo’s 

corporate culture discouraged expenditures that would make their data protection and 

encryption measures effective. 

184. Even without these misrepresentations, Plaintiffs and Class members were 

entitled to assume, and did assume Defendants would take appropriate measures to keep their 

PII safe. Defendants did not disclose at any time that Plaintiffs’ PII was vulnerable to hackers 

because Defendants’ data security measures were inadequate and outdated, and Defendants 

were the only ones in possession of that material information, which they had a duty to 

disclose. Defendants violated the UCL by misrepresenting, both by affirmative conduct and 

by omission, the safety of its many systems and services, specifically the security thereof, 

and their ability to safely store Plaintiffs’ and Class members’ PII. Defendants also violated 

the UCL by failing to implement reasonable and appropriate security measures or follow 

industry standards for data security, failing to comply with its own posted privacy policies, 

and by failing to immediately notify Plaintiffs and the other Class members of the 2014 and 

Forged Cookie Data Breaches. If Defendants had complied with these legal requirements, 

Plaintiffs and the other Class members would not have suffered the damages related to the 

2013 Breach, the 2014 Breach, the Forged Cookie Breach, and consequently from, 

 71 Security at Yahoo, Yahoo!, https://policies.yahoo.com/us/en/yahoo/privacy/topics/security/

index.htm (last visited Apr. 8, 2017).

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Defendants’ failure to timely notify Plaintiffs and the Class of the 2014 Breach and Forged 

Cookie Breach. 

185. Defendants’ acts, omissions, and misrepresentations as alleged herein were 

unlawful and in violation of, inter alia, Cal. Civ. Code § 1798.81.5(b), Section 5(a) of the 

Federal Trade Commission Act, 15 U.S.C. § 45(a), Cal. Bus. & Prof. Code § 22576 (as a 

result of Yahoo failing to comply with its own posted privacy policies), and, as to the Paid 

Users Class, the Consumer Legal Remedies Act, Cal. Civ. Code § 1750 et seq. 

186. Plaintiffs and the Class members suffered injury in fact and lost money or 

property as the result of Defendants’ unlawful business practices.

72 In particular, Plaintiffs 

and Class members have suffered from forged credit applications and tax returns; improper 

or fraudulent charges to their credit/debit card accounts; hacked emails; and other similar 

harm, all as a result of the Data Breaches. In addition, their PII was taken and is in the hands 

of those who will use it for their own advantage, or is being sold for value, making it clear 

that the hacked information is of tangible value. Plaintiffs and Class members have also 

suffered consequential out of pocket losses for procuring credit freeze or protection services, 

identity theft monitoring, and other expenses relating to identity theft losses or protective 

measures. Further, Plaintiffs Neff and Mortensen, and members of the Small Business Class 

and the Paid Users Class, have lost the benefit of their bargain and purchased services they 

otherwise would not have, or paid more for supposedly secure services than they would have, 

had they known the truth regarding Defendants’ inadequate data security.

187. As a result of Defendants’ unlawful business practices, violations of the UCL, 

Plaintiffs Neff and Mortensen and the members of the Paid Users and Small Business classes 

are entitled to restitution, disgorgement of wrongfully obtained profits and injunctive relief, 

and all Plaintiffs and all classes and subclass are entitled to injunctive relief. 

 72 Plaintiffs recognize that this Court ruled out of pocket expenses and the risk of future harm 

were not sufficient to confer standing under the UCL, and thus certain named plaintiffs 

lacked standing. However, Plaintiffs have included all named representatives in the 

“unlawful” and “unfair” UCL causes of action to preserve this issue for appeal. 

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Second Claim for Relief

Violation of California’s Unfair Competition Law (“UCL”) – Unfair Business Practice

(Cal. Bus. & Prof. Code § 17200, et seq.)

188. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

189. By reason of the conduct alleged herein, Defendants engaged in unfair 

“business practices” within the meaning of the UCL. 

190. Defendants stored the PII of Plaintiffs and members of their respective 

Classes in their electronic and consumer information databases. Defendants represented to 

Plaintiffs and members of the classes that their PII databases were secure and that class 

members’ PII would remain private. Defendants engaged in unfair acts and business 

practices by representing that they had “physical, electronic, and procedural safeguards that 

comply with federal regulations to protect personal information about you.”73 Yahoo further 

misrepresented that it “deploy[ed] industry standard physical, technical, and procedural 

safeguards that comply with relevant regulations to protect [Class members’] personal 

information”

191. Even without these misrepresentations, Plaintiffs and Class members were 

entitled to, and did, assume Defendants would take appropriate measures to keep their PII 

safe. Defendants did not disclose at any time that Plaintiffs’ PII was vulnerable to hackers 

because Defendants’ data security measures were inadequate and outdated, and Defendants 

were the only ones in possession of that material information, which they had a duty to 

disclose.

192. Defendants knew or should have known they did not employ reasonable 

measures that would have kept Plaintiffs’ and the other Class members’ PII and financial 

information secure and prevented the loss or misuse of Plaintiffs’ and the other Class 

members’ PII and financial information. Indeed, at the time of the 2013 Breach, Yahoo’s 

 73 Security at Yahoo, Yahoo!, https://policies.yahoo.com/us/en/yahoo/privacy/topics/security/

index.htm (last visited Apr. 8, 2017).

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data encryption protocol, known as MD5, was widely discredited and had been proven, many 

years prior, easy to break. Additionally, Defendants’ corporate culture discouraged 

expenditures that would make their data protection and encryption measures effective. 

193. Defendants’ violated the UCL by misrepresenting, both by affirmative 

conduct and by omission, the security of their many systems and services, and their ability to 

safely store Plaintiffs’ and Class members’ PII. Defendants also violated the UCL by failing 

to implement and maintain reasonable security procedures and practices appropriate to 

protect all class members’ PII, and by failing to immediately notify Plaintiffs and the other 

Class members of the Data Breaches. If Defendants followed the industry standards and legal 

requirements, Plaintiffs and the Class would not have suffered the damages related to the 

2013 Breach, the 2014 Breach, the Forged Cookie Breach, and consequently from 

Defendants’ failure to timely notify Plaintiffs and the Class of the 2014 Breach and Forged 

Cookie Breach. 

194. Defendants also violated their commitment to maintain the confidentiality and 

security of the PII of Plaintiffs and their respective Classes, and failed to comply with their 

own policies and applicable laws, regulations, and industry standards relating to data 

security.

195. Defendants engaged in unfair business practices under the “balancing 

test.” The harm caused by Defendants’ actions and omissions, as described in detail above, 

greatly outweigh any perceived utility. Indeed, Defendants’ failure to follow basic data 

security protocols and misrepresentations to consumers about Defendants’ data security 

cannot be said to have had any utility at all. Thus, for example, there was no utility in Yahoo 

continuing to use MD5 encryption years after it had been publicly discredited as a viable 

encryption protocol. Likewise, there was no utility in Yahoo telling the Class that it had 

“physical, electronic, and procedural safeguards that comply with federal regulations to 

protect personal information about you,” and that it deployed “industry standards,” when 

neither was true. And, there was no utility, other than perhaps to Defendants themselves, in 

unreasonably waiting to disclose the 2014 Breach and Forged Cookie Breach even though 

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Defendants had contemporaneous knowledge they were happening. All of these actions and 

omissions were clearly injurious to Plaintiffs and the Class members, directly causing the 

harms alleged below.

196. Defendants engaged in unfair business practices under the “tethering 

test.” Defendants’ actions and omissions, as described in detail above, violated fundamental 

public policies expressed by the California Legislature. See, e.g., Cal. Civ. Code § 1798.1 

(“The Legislature declares that ... all individuals have a right of privacy in information 

pertaining to them.... The increasing use of computers ... has greatly magnified the potential 

risk to individual privacy that can occur from the maintenance of personal information.”); 

Cal. Civ. Code § 1798.81.5(a) (“It is the intent of the Legislature to ensure that personal 

information about California residents is protected.”); Cal. Bus. & Prof. Code § 22578 (“It is 

the intent of the Legislature that this chapter [including the Online Privacy Protection Act] is 

a matter of statewide concern.”) Defendants’ acts and omissions, and the injuries caused by 

them are thus “comparable to or the same as a violation of the law ...” Cel-Tech 

Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 187. 

197. Defendants engaged in unfair business practices under the “FTC test.” 

The harm caused by Defendants’ actions and omissions, as described in detail above, is 

substantial in that it affects hundreds of millions of Class members (not to mention many 

more hundreds of millions of persons who cannot bring claims in this Court) and has caused 

those persons to suffer actual harms. Such harms include a substantial risk of identity theft, 

disclosure of Class members’ PII and financial information to third parties without their 

consent, diminution in value of their PII, consequential out of pocket losses for procuring 

credit freeze or protection services, identity theft monitoring, and other expenses relating to 

identity theft losses or protective measures. This harm continues given the fact that Class 

members’ PII remains in Defendants’ possession, without adequate protection, and is also in 

the hands of those who obtained it without their consent. Defendants’ actions and omissions 

violated, inter alia, Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45. See, 

e.g., F.T.C. v. Wyndham Worldwide Corp., 10 F. Supp. 3d 602, 613 (D.N.J. 2014), aff'd, 799 

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F.3d 236 (3d Cir. 2015); In re LabMD, Inc., FTC Docket No. 9357, FTC File No. 102-3099 

(July 28, 2016) (failure to employ reasonable and appropriate measures to secure personal 

information collected violated § 5(a) of FTC Act); In re BJ’s Wholesale Club, Inc., FTC 

Docket No. C-4148, FTC File No. 042-3160 (Sept. 20, 2005) (same); In re CardSystems 

Solutions, Inc., FTC Docket No. C-4168, FTC File No. 052-3148 (Sept. 5, 2006) (same); see 

also United States v. ChoicePoint, Inc., Civil Action No. 1:06-cv-0198-JTC (N.D. Ga. Oct. 

14, 2009) (“failure to establish and implement, and thereafter maintain, a comprehensive 

information security program that is reasonably designed to protect the security. 

confidentiality, and integrity of personal information collected from or about consumers” 

violates § 5(a) of FTC Act); 15 U.S.C. § 45(n) (defining “unfair acts or practices” as those 

that “cause[ ] or [are] likely to cause substantial injury to consumers which [are] not 

reasonably avoidable by consumers themselves and not outweighed by countervailing 

benefits to consumers or to competition.”). 

198. Plaintiffs and the Class members suffered injury in fact and lost money or 

property as the result of Defendants’ unfair business practices. In particular, Plaintiffs and 

Class members have suffered from forged credit applications and tax returns; improper or 

fraudulent charges to their credit/debit card accounts; hacked emails; and other similar harm, 

all as a result of the Data Breaches. In addition, their PII was taken and is in the hands of 

those who will use it for their own advantage, or is being sold for value, making it clear that 

the hacked information is of tangible value. Plaintiffs and Class members have also suffered 

consequential out of pocket losses for procuring credit freeze or protection services, identity

theft monitoring, and other expenses relating to identity theft losses or protective measures. 

Further, Plaintiffs Neff and Mortensen, and members of the Small Business Class and the 

Paid Users Class, have lost the benefit of their bargain and purchased services they otherwise 

would not have, or paid more for supposedly secure services than they would have, had they 

known the truth regarding Defendants’ inadequate data security.

199. As a result of Defendants’ unfair business practices, violations of the UCL, 

Plaintiffs Neff and Mortensen and the Paid Users and Small Business classes are entitled to 

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restitution, disgorgement of wrongfully obtained profits and injunctive relief, and all 

Plaintiffs and all classes and subclass are entitled to injunctive relief. 

Third Claim for Relief

Deceit by Concealment — Cal. Civil Code §§ 1709, 1710

200. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein. 

201. As alleged above, Defendants knew their data security measures were grossly 

inadequate by, at the absolute latest, 2012. At that time, they were warned by both Mandiant 

and hackers that their systems were extremely vulnerable to attack, facts Defendants already 

knew given their previous data breaches and security problems. Defendants also learned 

about the 2014 Breach while it was happening.

202. In response to all of these facts, Defendants chose to do nothing to protect 

Plaintiffs and the Class or warn them about the security problems and breaches. 

203. Defendants had an obligation to disclose to all class members that their Yahoo 

accounts and PII were an easy target for hackers and Defendants were not implementing 

measures to protect them. Defendants also had a duty to disclose the 2014 Breach when they 

knew about it.

204. Defendants did not do these things. Instead, Defendants willfully deceived 

Plaintiffs and the Class by concealing the true facts concerning their data security, which 

Defendants were obligated to, and had a duty to, disclose. 

205. Had Defendants disclosed the true facts about their dangerously poor data 

security, Plaintiffs and the Class would have taken measures to protect themselves. Plaintiffs 

and the Class justifiably relied on Defendants to provide accurate and complete information 

about Defendants’ data security, and Defendants did not.

206. Alternatively, given the gaping security holes in Defendants’ services and 

Defendants’ refusal to take measures to even detect those holes, much less fix them, 

Defendants simply should have shut down their current service. Independent of any 

representations made by Defendants, Plaintiffs and the Class justifiably relied on Defendants 

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to provide a service with at least minimally adequate security measures and justifiably relied 

on Defendants to disclose facts undermining that reliance.

207. Rather than cease offering a clearly unsafe and defective service or disclosing 

to Plaintiffs and the Class that its services were unsafe and users’ PII was exposed to theft on 

a grand scale, Defendants continued on and willfully suppressed any information relating to 

the inadequacy of their security.

208. These actions are “deceit” under Cal. Civil Code § 1710 in that they are the 

suppression of a fact, by one who is bound to disclose it, or who gives information of other 

facts which are likely to mislead for want of communication of that fact. 

209. As a result of this deceit by Defendants, they are liable under Cal. Civil Code 

§ 1709 for “any damage which [Plaintiffs and the Class] thereby suffer[].” 

210. As a result of this deceit by Defendants, the PII and financial information of 

Plaintiffs and the Class were compromised, placing them at a greater risk of identity theft and 

subjecting them to identity theft, and their PII and financial information was disclosed to 

third parties without their consent. Plaintiffs and Class members also suffered diminution in 

value of their PII in that it is now easily available to hackers on the Dark Web. In addition, 

Plaintiff Neff and the members of the Small Business Users Class and Plaintiff Mortensen 

and the members of the Paid User Class were damaged to the extent of all or part of the 

amounts they paid for Defendants’ services, because those services were either worth nothing 

or worth less than was paid for them because of their lack of security. Plaintiffs and the Class 

have also suffered consequential out of pocket losses for procuring credit freeze or protection 

services, identity theft monitoring, and other expenses relating to identity theft losses or 

protective measures. 

211. Defendants’ deceit as alleged herein is fraud under Civil Code § 3294(c)(3) in 

that it was deceit or concealment of a material fact known to the Defendants conducted with 

the intent on the part of Defendants of depriving Plaintiffs and the Class of “legal rights or 

otherwise causing injury.” As a result, Plaintiffs and the Class are entitled to punitive 

damages against Defendants under Civil Code § 3294(a). 

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Fourth Claim for Relief

Negligence

212. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein. 

213. Defendants owed a duty to Plaintiffs and the Class to exercise reasonable care 

in safeguarding and protecting their PII and keeping it from being compromised, lost, stolen, 

misused, and or/disclosed to unauthorized parties. This duty included, among other things, 

designing, maintaining, and testing Defendants’ security systems to ensure the PII of 

Plaintiffs’ and the Class was adequately secured and protected, including using encryption 

technologies. Defendants further had a duty to implement processes that would detect a 

breach of their security system in a timely manner.

214. Defendants knew that the PII of Plaintiffs and the Class was personal and 

sensitive information that is valuable to identity thieves and other criminals. Defendants also 

knew of the serious harms that could happen if the PII of Plaintiffs and the Class was 

wrongfully disclosed, that disclosure was not fixed, or Plaintiffs and the Class were not told 

about the disclosure in a timely manner. 

215. By being entrusted by Plaintiffs and the Class to safeguard their PII, 

Defendants had a special relationship with Plaintiffs and the Class. Plaintiffs and the Class 

signed up for Defendants’ services and agreed to provide their PII with the understanding 

that Defendants would take appropriate measures to protect it, and would inform Plaintiffs 

and the Class of any breaches or other security concerns that might call for action by 

Plaintiffs and the Class. But, Defendants did not. Defendants not only knew their data 

security was inadequate, they also knew they didn’t even have the tools to detect and 

document intrusions or exfiltration of PII. Defendants are morally culpable, given their 

repeated security breaches, wholly inadequate safeguards, and refusal to notify Plaintiffs and 

the Class of breaches or security vulnerabilities, 

216. Defendants breached their duty to exercise reasonable care in safeguarding 

and protecting Plaintiffs’ and the Class members’ PII by failing to adopt, implement, and 

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maintain adequate security measures to safeguard that information, despite repeated failures 

and intrusions, and allowing unauthorized access to Plaintiffs’ and the other Class members’ 

PII. 

217. Defendants also breached their duty to timely disclose that Plaintiffs’ and the 

other class members’ PII had been, or was reasonably believed to have been, stolen or 

compromised.

218. Defendants’ failure to comply with industry and federal regulations further 

evidences Defendants’ negligence in failing to exercise reasonable care in safeguarding and 

protecting Plaintiffs’ and the Class members’ PII.

219. Defendants’ breaches of these duties were not merely isolated incidents or 

small mishaps. Rather, the breaches of the duties set forth above resulted from a long-term 

company-wide refusal by Defendants to acknowledge and correct serious and ongoing data 

security problems. Defendants’ corporate culture discouraged its own employees from 

reporting or fixing security issues and encouraged them to look the other way. Defendants 

also made a company decision not to disclose the 2014 Breach when they knew about it, but 

rather to sweep it under the rug as long as possible.

220. But for Defendants’ wrongful and negligent breach of their duties owed to 

Plaintiff and the Class, their PII would not have been compromised, stolen, and viewed by 

unauthorized persons. Defendants’ negligence was a direct and legal cause of the theft of the 

PII of Plaintiffs and the Class and all resulting damages.

221. The injury and harm suffered by Plaintiffs and the Class members was the 

reasonably foreseeable result of Defendants’ failure to exercise reasonable care in 

safeguarding and protecting Plaintiff’s and the other class members’ PII. Defendants knew 

their systems and technologies for processing and securing the PII of Plaintiffs and the Class 

had numerous security vulnerabilities.

222. As a result of this misconduct by Defendants, the PII and financial 

information of Plaintiffs and the Class were compromised, placing them at a greater risk of 

identity theft and subjecting them to identity theft, and their PII and financial information 

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was disclosed to third parties without their consent. Plaintiffs and Class members also 

suffered diminution in value of their PII in that it is now easily available to hackers on the 

Dark Web. In addition, Plaintiff Neff and the members of the Small Business Users Class 

and Plaintiff Mortensen and the members of the Paid User Class were damaged to the extent 

of all or part of the amounts they paid for Defendants’ services, because those services were 

either worth nothing or worth less than was paid for them because of their lack of security. 

Plaintiffs and the Class have also suffered consequential out of pocket losses for procuring 

credit freeze or protection services, identity theft monitoring, and other expenses relating to 

identity theft losses or protective measures. 

223. Defendants’ misconduct as alleged herein is malice or oppression under Civil 

Code § 3294(c)(1) and (2) in that it was despicable conduct carried on by Defendants with a 

willful and conscious disregard of the rights or safety of Plaintiffs and the Class and 

despicable conduct that has subjected Plaintiffs and the Class to cruel and unjust hardship in 

conscious disregard of their rights. As a result, Plaintiffs and the Class are entitled to punitive 

damages against Defendants under Civil Code § 3294(a). 

Fifth Claim for Relief

Breach of Contract

224. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein. 

225. Yahoo’s Privacy Policy is incorporated by reference into its Terms of Service, 

which forms a binding contract between Yahoo and each user at the time of the creation of an 

account. The “Security at Yahoo” page is hyperlinked directly from the Yahoo Privacy

Policy. 

226. Yahoo breached the contract with respect to at least the following four 

provisions of its Privacy Policy.

• “We are committed to ensuring your information is protected and apply 

safeguards in accordance with applicable law.”

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• “Yahoo does not rent, sell, or share personal information about you with other 

people or non-affiliated companies except to provide products or services 

you’ve requested, when we have your permission, or under [certain 

inapplicable circumstances].”

• “We limit access to personal information about you to employees who we 

reasonably believe need to come into contact with that information to provide 

products or services to you or in order to do their jobs.”

• “We have physical, electronic, and procedural safeguards that comply with 

federal regulations to protect personal information about you.”

227. Yahoo further breached the contract with respect to at least the following 

provisions of the Security at Yahoo page incorporated into the Privacy Policy:

• Promising “a secure user experience . . . .”

• “We deploy industry standard physical, technical, and procedural safeguards 

that comply with relevant regulations to protect your personal information”

228. Aabaco’s Privacy Policy is similarly incorporated by reference into its Terms 

of Service, forming a binding contract between Aabaco and each user at the time of 

purchasing any service or product from Aabaco. Aabaco’s Terms of Service for 2009 and 

2011-2016 are attached to this First Amended Consolidated Class Action Complaint as 

Exhibits 16-22. Aabaco’s Privacy Policy further provides that Aabaco shares PII with Yahoo, 

and “Yahoo’s Privacy Policy governs its use of that information.”

229. Aabaco breached the contract with respect to at least the following three 

provisions of its Privacy Policy:

• “The Company does not rent, sell, or share Personal Information about You 

with other people or non-affiliated companies except to provide products or 

services You've requested, when we have Your permission, or under the 

following circumstances: ...” 

• “We limit access to Personal Information about You to employees, 

contractors, or service providers who we believe reasonably need to come into 

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contact with that information to provide products or services to You or in 

order to do their jobs.”

• “We have physical, electronic, and procedural safeguards that comply with 

federal regulations to protect Personal Information about You.”

230. Defendants breached these provisions of the contracts in that they did not have 

proper safeguards “in accordance with applicable law” to protect Plaintiffs’ and Class 

members’ “Personal Information,” including, but not limited to, Section 5(a) of the FTC Act, 

and did not limit access to that information to the specified individuals or entities. 

Defendants violated their commitment to maintain the confidentiality and security of the PII 

of Plaintiffs and the class members, and failed to comply with their own policies and 

applicable laws, regulations, and industry standards relating to data security.

231. The 2013, 2014, and Forged Cookie Data Breaches were a direct and legal 

cause of the injuries and damages suffered by Plaintiffs and the Class members.

232. Both Yahoo’s and Aabaco’s Terms of Service purport to impose a limitation 

of liability on users who agree to the Terms, in which users agree Defendants will not be

liable for indirect, punitive, incidental, special, consequential, or exemplary damages. See, 

Exhs. 1-6, 16-23. These limitations, by their own terms, do not apply to direct damages.

233. Further, to the extent the limitations apply to consequential damages, they are 

unconscionable under California law. 

234. California Commercial Code section 2719(b)(3) provides that a contractual 

limitation of consequential damages is invalid if it is unconscionable. Unconscionability 

under California law involves both procedural and substantive unconscionability.

235. Procedural unconscionability under California law focuses on the factors of 

surprise and oppression. “Oppression” arises from an inequality of bargaining power which 

results in no real negotiation and ‘an absence of meaningful choice.’ “Surprise” involves the 

extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix 

printed form drafted by the party seeking to enforce the disputed terms. 

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236. The Yahoo Terms of Service have both. On the issue of surprise, the liability 

disclaimers appear on pages 8 and 9 of a 12-page “clickwrap” Terms of Service document—

in other words, neither at the front or the back, where users are most likely to see them. The 

Terms of Service itself is a “clickwrap” agreement where the user must scroll through many 

pages of contract legalese and then check a box on the computer indicating the user has seen 

and agreed to the Terms. It is fair to say all Plaintiffs and class members would be surprised 

to find out Defendants disclaimed even the most basic performance characteristics of their 

products and services.

237. On the question of oppression, the Terms of Service themselves are contained 

in an adhesion contract that allows for no form of negotiation or modification. All of 

Defendants’ customers must accept the Terms on a take it or leave it basis. 

238. Substantive unconscionability under California law focuses on the onesidedness or overly harsh effect of the contract term or clause. Again, the disclaimers by 

Yahoo are inherently one-sided. Among other things Yahoo’s disclaimers force its customers 

to agree that Yahoo’s services and software are being provided “as is,” and customers are 

forced to accept that Yahoo disclaims any warranties of any kind. See, e.g., Exh. 3, pp. 7-8. 

In other words, Yahoo was providing Plaintiffs and the Class with a product or service and 

then forcing those people to agree the product or service could be completely useless. “Since 

a product's performance forms the fundamental basis for a sales contract, it is patently 

unreasonable to assume that a buyer would purchase a standardized mass-produced product 

from an industry seller without any enforceable performance standards.” A & M Produce Co. 

v. FMC Corp., 135 Cal. App. 3d 473, 491 (1982).

239. In addition, there is no reasonable commercial justification for such broad 

disclaimers and limitations on liability. Defendants have obligations under both state and 

federal law to maintain acceptable levels of data security, so it cannot be commercially 

reasonable to attempt to evade those legal obligations by way of disclaimers buried in the 

Terms of Service. Defendants were not selling used products at a yard sale—where an “as is” 

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limitation might be commercially appropriate—they are technology giants providing internet 

services which they advertised as being safe and sophisticated. 

240. Consequential damages are also a clear and well-understood consequence of 

a data breach, and allowing Yahoo—an internet titan—to compel individual users who just 

want to sign up for an email address to disclaim them is a commercially unfair re-allocation 

of risk.

241. Further, the disclaimers are unenforceable under California Civil Code § 

1668, which prohibits enforcement of contract terms where the contract attempts to “exempt 

anyone from responsibility for his own fraud, or willful injury to the person or property of 

another, or violation of law, whether willful or negligent ...” 

242. Here, to the extent Defendants are seeking to invoke the disclaimers or 

limitations on liability to avoid responsibility for their violation of several laws, including 

Section 5 of the FTC Act, the CRA, and the CLRA, among others, they are “against the 

policy of the law” and cannot be enforced. 

243. Plaintiffs and the other Class members were harmed as the result of 

Defendants’ breach of contract terms outlined above, resulting in the 2013, 2014, and Forged 

Cookie Data Breaches, because their PII and financial information were compromised, 

placing them at a greater risk of identity theft and subjecting them to identity theft, and their 

PII and financial information was disclosed to third parties without their consent. Plaintiffs 

and Class members also suffered diminution in value of their PII in that it is now easily 

available to hackers on the Dark Web. In addition, Plaintiff Neff and the members of the 

Small Business Users Class and Plaintiff Mortensen and the members of the Paid User Class 

were damaged to the extent of all or part of the amounts they paid for Defendants’ services, 

because those services were either worth nothing or worth less than was paid for them 

because of their lack of security. Plaintiffs and the Class have also suffered consequential out 

of pocket losses for procuring credit freeze or protection services, identity theft monitoring, 

and other expenses relating to identity theft losses or protective measures. 

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Sixth Claim for Relief

Breach of Implied Contracts

(In the Alternative to the Claim for Breach of Express Contract)

244. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

245. To the extent that Defendants’ Terms of Service and Privacy Policies did not 

form express contracts, the opening of a Yahoo or Aabaco account created implied contracts 

between Defendants and the user, the terms of which were set forth by the relevant Terms of 

Service and Privacy Policy (including the Security at Yahoo page hyperlinked therefrom).

246. Defendants breached such implied contracts by failing to adhere to the terms 

of the applicable Policy, as described above in Plaintiffs’ Fourth Claim for Relief, ¶¶ 222 -

241. Defendants violated their commitment to maintain the confidentiality and security of the 

PII of Plaintiffs and the Class, and failed to comply with their own policies and applicable 

laws, regulations, and industry standards relating to data security.

247. Plaintiffs and the Class members were harmed as the result of Defendants’ 

breach of the implied contracts because their PII and financial information were 

compromised, placing them at a greater risk of identity theft and subjecting them to identity 

theft, and their PII and financial information was disclosed to third parties without their 

consent. Plaintiffs and Class members also suffered diminution in value of their PII in that it 

is now easily available to hackers on the Dark Web. In addition, Plaintiff Neff and the 

members of the Small Business Users Class and Plaintiff Mortensen and the members of the 

Paid User Class were damaged to the extent of all or part of the amounts they paid for 

Defendants’ services, because those services were either worth nothing or worth less than 

was paid for them because of their lack of security. Plaintiffs and the Class have also suffered 

consequential out of pocket losses for procuring credit freeze or protection services, identity 

theft monitoring, and other expenses relating to identity theft losses or protective measures. 

The Class members are further damaged as their PII remains in Defendants’ possession, 

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without adequate protection, and is also in the hands of those who obtained it without their 

consent.

248. This breach of the implied contracts was a direct and legal cause of the 

injuries and damages to Plaintiffs and members of the Class as described above.

Seventh Claim for Relief

Breach of the Implied Covenant of Good Faith and Fair Dealing

249. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

250. Under California law there is an implied covenant of good faith and fair 

dealing in every contract that neither party will do anything which will injure the right of the 

other to receive the benefits of the agreement.

251. Under the express and implied terms of the agreements entered into between 

Defendants and Plaintiffs and the Class members, Plaintiffs and the Class members were to 

benefit through the use of Defendants’ services, while those Defendants were supposed to 

benefit through the limited use of users’ data for advertising and product enhancement 

purposes. 

252. Defendants exhibited bad faith through their conscious awareness of and 

deliberate indifference to the risks to Class members’ PII, including by (a) using password 

encryption standards that were long known to be unsafe; (b) taking no serious action in 

response to past breaches; (c) falling well behind industry standards of cybersecurity; and (d) 

under-investing in cybersecurity resources despite assurances to its users to the contrary. In 

doing so, Defendants acted well outside of commercially reasonable norms.

253. Defendants, by exposing their users to vastly greater and more harmful 

exploitation of their PII than they had bargained for, breached the implied covenant of good 

faith and fair dealing with respect to both the specific contractual terms in Yahoo’s Privacy 

Policy and Aabaco’s Privacy Policy and the implied warranties of their contractual 

relationships with their users.

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254. Plaintiffs and the other Class members were harmed as the result of 

Defendants’ breach of the implied covenant of good faith and fair dealing because their PII 

and financial information were compromised, placing them at a greater risk of identity theft 

and their PII and financial information disclosed to third parties without their consent. 

Plaintiffs and Class members also suffered diminution in value of their PII in that it is now 

easily available to hackers on the Dark Web. Plaintiff Neff and the members of the Small 

Business Users Class and Plaintiff Mortensen and the members of the Paid User Class were 

damaged to the extent of all or part of the amounts they paid for Defendants’ services, 

because those services were either worth nothing or worth less than was paid for them 

because of their lack of security. Plaintiffs and the Class have also suffered consequential out 

of pocket losses for procuring credit freeze or protection services, identity theft monitoring, 

and other expenses relating to identity theft losses or protective measures. The Class 

members are further damaged as their PII remains Defendants’ possession, without adequate 

protection, and is also in the hands of those who obtained it without their consent.

255. Defendants’ misconduct as alleged herein is fraud under Civil Code § 

3294(c)(3) in that it was deceit or concealment of a material fact known to the Defendants 

conducted with the intent on the part of Defendants of depriving Plaintiffs and the Class of 

“legal rights or otherwise causing injury.” In addition, Defendants’ misconduct as alleged 

herein is malice or oppression under Civil Code § 3294(c)(1) and (2) in that it was despicable 

conduct carried on by Defendants with a willful and conscious disregard of the rights or 

safety of Plaintiffs and the Class and despicable conduct that has subjected Plaintiffs and the 

Class to cruel and unjust hardship in conscious disregard of their rights. As a result, Plaintiffs 

and the Class are entitled to punitive damages against Defendants under Civil Code § 

3294(a). 

Eighth Claim for Relief

Declaratory Relief

256. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

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257. In connection with the active case and controversy between Plaintiffs and 

Defendants, Plaintiffs seek declaratory relief pursuant to 28 U.S.C. § 2201, declaring that:

a. To the extent Plaintiffs’ claims for express or implied warranties are 

covered by Yahoo’s Terms of Service, the disclaimer of warranties contained in § 

19.1 is unconscionable and unenforceable; 

b. To the extent Plaintiffs’ claims are covered by Yahoo’s Terms of 

Service, the limitation of liability in § 20 “resulting from...unauthorized access to 

...[users’] data” is unconscionable and unenforceable, or precluded by federal and 

state law as recognized in § 21;

c. To the extent any Plaintiffs’ claims for express or implied warranties 

are covered by Aabaco’s Terms of Service, the disclaimer of warranties contained in 

§ 12 is unconscionable and unenforceable; 

d. To the extent Plaintiffs’ claims are covered by Aabaco’s Terms of 

Service, the limitation of liability in § 13 is unconscionable and unenforceable, or 

precluded by federal and state law; and

e. To the extent Plaintiffs’ claims are covered by Aabaco’s Terms of 

Service, the one-year limitation contained in § 20 is unconscionable and 

unenforceable.

258. The grounds for unconscionability of the disclaimers and limitations on 

liability mentioned above are alleged in paragraphs 232-242, infra, and are specifically 

incorporated herein by reference. The shortened one-year statute of limitations clause is 

unconscionable and unenforceable for the same reasons and also because it benefits only 

Defendants and deprives Plaintiffs and the Class of their legal rights. See, e.g., Circuit City 

Stores, Inc. v. Adams, 279 F.3d 889, 894 (9th Cir. 2002) (one-year limitation on employment 

claims substantively unconscionable).

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ADDITIONAL CLAIMS ALLEGED ON BEHALF OF THE SMALL BUSINESS 

USERS CLASS ONLY

Ninth Claim for Relief

Violation of California’s Unfair Competition Law (“UCL”) – Fraudulent Business 

Practice

(Cal. Bus. & Prof. Code § 17200, et seq.)

259. Plaintiff Neff repeats, realleges, and incorporates by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

260. By reason of the conduct alleged herein, Defendants engaged in fraudulent 

“business practices” within the meaning of the UCL. 

261. Defendants affirmatively represented to Plaintiff Neff and members of the 

Small Business Users’ Class that their PII databases were secure and that Class members’ PII 

would remain private. Defendants engaged in fraudulent acts and business practices by 

misleadingly representing that they had “physical, electronic, and procedural safeguards that 

comply with federal regulations to protect personal information about you.” Yahoo further 

misrepresented that it “deploy[ed] industry standard physical, technical, and procedural 

safeguards that comply with relevant regulations to protect [Class members’] personal 

information.” These representations were false, as detailed in the fact section above. 

262. Defendants not only made affirmative misrepresentations but also made 

fraudulent omissions by concealing the true facts from Plaintiff Neff and members of the 

Small Business Users’ Class. Defendants did not disclose to Plaintiff Neff and members of 

the Small Business Users’ Class that their data security measures were substandard and failed 

to comply with legal requirements and industry protocols for data security. Defendants also 

failed to inform Plaintiff Neff and members of the Small Business Users’ Class of the 2014 

Breach and Forged Cookie Breach in a timely manner despite being required to do so by law. 

Defendants concealed these material facts from Plaintiff Neff and members of the Small 

Business Users’ Class even though Defendants had exclusive knowledge of them and 

Plaintiff Neff and members of the Small Business Users’ Class could not reasonably have 

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been expected to discover them, and even though they contradicted and rendered untrue 

Defendants’ affirmative representations about data security. 

263. Defendants’ representations that they would secure and protect the PII of 

Plaintiff Neff and members of the Small Business Users’ Class were facts that reasonable 

persons could be expected to rely upon when deciding whether to use Defendants’ services.

264. Plaintiff Neff and members of the Small Business Users’ Class read and relied 

on these representations in their Terms of Service and the incorporated Privacy Policy in 

deciding to provide their PII to Defendants. Based on these representations, Plaintiff Neff 

and members of the Small Business Users’ Class were entitled to, and did, assume 

Defendants would take appropriate measures to keep their PII safe. Defendants did not 

disclose at any time that Plaintiffs’ PII was vulnerable to hackers because Defendants’ data 

security measures were inadequate and outdated.

265. Specifically, Plaintiff Neff saw, read, and relied on Defendants’ 

representations and warranties regarding the safety and security of his PII in Yahoo’s Privacy 

Policies and Security at Yahoo (for Yahoo small business users), as more fully alleged 

herein, and would not have signed up for Defendants’ services if he had not believed they 

were secure.

266. Had Plaintiff Neff and members of the Small Business Users’ Class known 

that Defendants’ representations about their data security were false, and had Plaintiff Neff 

and members of the Small Business Users’ Class known the material facts Defendants failed 

to disclose to them about Defendants’ substandard data security practices, they would not

have provided their PII to Defendants and would not have signed up for Defendants’ 

services.

267. Plaintiff Neff and members of the Small Business Users’ Class suffered injury 

in fact and lost money or property as the result of Defendants’ fraudulent business practices. 

In particular, Plaintiff Neff and members of the Small Business Users’ Class have suffered 

from forged credit applications and tax returns; improper or fraudulent charges to their 

credit/debit card accounts; hacked emails; and other similar harm, all as a result of the Data 

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Breaches. In addition, their PII was taken and is in the hands of those who will use it for their 

own advantage, or is being sold for value, making it clear that the hacked information is of 

tangible value. Plaintiff Neff and members of the Small Business Users’ Class have also 

suffered consequential out of pocket losses for procuring credit freeze or protection services, 

identity theft monitoring, and other expenses relating to identity theft losses or protective 

measures. Further, Plaintiff Neff and members of the Small Business Users’ Class have lost 

the benefit of their bargain and purchased services they otherwise would not have, or paid 

more for supposedly secure services than they would have, had they known the truth 

regarding Defendants’ inadequate data security.

268. As a result of Defendants’ fraudulent business practices, violations of the 

UCL, Plaintiff Neff and members of the Small Business Users’ Class are entitled to 

restitution, disgorgement of wrongfully obtained profits and injunctive relief. 

Tenth Claim for Relief

Misrepresentation

269. Plaintiff Neff repeats, realleges, and incorporates by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein. 

270. As outlined above, Defendants made numerous representations, in their 

advertising and in their Privacy Policies, regarding the supposed secure nature of their data 

security for their small business services. Such representations were false because 

Defendants utilized outdated encryption, and failed to disclose that they did not use 

reasonable, industry-standard means, to safeguard against hacking and theft of customer PII. 

271. Such representations were material to customers and would-be customers, 

who reasonably relied on the representations. Plaintiff Neff and other members of the Small 

Business Users Class would not have agreed to use and pay for the small business services 

and turn over PII, had they known the truth: that Defendants’ services were not as secure as 

represented or secure by any standard.

272. Defendants Yahoo and Aabaco intended that Plaintiff Neff and other Small 

Business Users Class members rely on their security representations, as they knew no wouldCase 5:16-md-02752-LHK Document 178 Filed 12/19/17 Page 88 of 100
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be customer would submit PII or entrust an online business to unreasonable security risks. In 

reliance on these representations and omissions, Plaintiff and the Small Business Users Class 

contracted with Yahoo and Aabaco for email and web services, and provided their PII, which 

was ancillary to, but not the subject of, the contracts for services. In addition, Plaintiff Neff 

and other Small Business Users Class members used Yahoo’s and Aabaco’s email and web 

services to complete transactions or send sensitive information including PII. This provision 

of PII was not part of the contracts with Yahoo and Aabaco.

273. Defendants experienced several data breaches prior to the 2013 Breach (and 

after), had been warned that their encryption was outdated, and rejected the advice from their 

own security employees or contractors to improve security. Defendants were negligent in 

their representations. 

274. As a direct and proximate result of Defendants’ wrongful actions and 

inactions, Plaintiff Neff and the other Small Business Users Class members have been 

damaged by paying monthly fees to Defendants for something they did not receive: secure 

small business services. 

275. As a direct and proximate result of Defendants’ negligent, and/or willful, 

actions and inactions, Plaintiff Neff and the other Small Business Users Class members 

experienced damage to the PII supplied to Defendants for purposes of their business services 

contracts, actual identity theft (as in Plaintiff Neff’s case) and/or being placed at an

imminent, immediate, and continuing increased risk of harm from identity theft and identity 

fraud, requiring them to take the time and effort to mitigate the actual and potential impact of 

the Yahoo Data Breaches on their lives. 

276. As a direct and proximate result of Defendants’ negligent, and/or willful, 

actions and inactions, Plaintiff Neff and the other Small Business Users Class members 

experienced damage to property that was not the subject of the business services contracts 

with Defendants Yahoo and Aabaco, including but not limited to the PII contained within 

private email communications, actual identity theft, damage to their credit, damage to their 

businesses, and/or being placed at an imminent, immediate, and continuing increased risk of 

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harm from identity theft and identity fraud, requiring them to take the time and effort to 

mitigate the actual and potential impact of the Yahoo Data Breaches on their lives. 

277. Defendants’ misconduct as alleged herein is fraud under Civil Code § 

3294(c)(3) in that it was deceit or concealment of a material fact known to the Defendants 

conducted with the intent on the part of Defendants of depriving Plaintiffs and the Class of 

“legal rights or otherwise causing injury.” In addition, Defendants’ misconduct as alleged 

herein is malice or oppression under Civil Code § 3294(c)(1) and (2) in that it was despicable 

conduct carried on by Defendants with a willful and conscious disregard of the rights or 

safety of Plaintiffs and the Class and despicable conduct that has subjected Plaintiffs and the 

Class to cruel and unjust hardship in conscious disregard of their rights. As a result, Plaintiffs 

and the Class are entitled to punitive damages against Defendants under Civil Code § 

3294(a). 

ADDITIONAL CLAIMS ALLEGED ON BEHALF OF THE PAID USERS CLASS 

ONLY

Eleventh Claim for Relief

Violation of California’s Consumer Legal Remedies Act (“CLRA”)

(Cal. Civ. Code § 1750, et seq.)

278. Plaintiffs repeat, reallege, and incorporate by reference the allegations 

contained in paragraphs 1 through 179 as though fully stated herein.

279. The CLRA was enacted to protect consumers against unfair and deceptive 

business practices. It extends to transactions that are intended to result, or which have 

resulted, in the sale of goods or services to consumers. Yahoo provided services to Plaintiff 

Mortensen and members of the Paid Users Class within the meaning of Cal. Civ. Code § 

1761(b), and Yahoo’s acts, omissions, representations, and practices as described herein fall 

within the CLRA.

280. Plaintiff Mortensen and the other members of the Paid Users Class are 

consumers within the meaning of Cal. Civ. Code § 1761(d).

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281. Yahoo’s acts, omissions, misrepresentations, and practices were and are likely 

to deceive consumers. By misrepresenting the safety and security of its electronic and 

customer information databases, Yahoo violated the CLRA. Yahoo had exclusive knowledge 

of undisclosed material facts, namely, that its consumer databases were defective and/or 

unsecure, and withheld that knowledge from Plaintiff Mortensen and the other members of 

the Paid Users Class. In addition, Yahoo had contemporaneous knowledge of the 2014 Data 

Breach and of the Forged Cookie Breach, which it failed to disclose, and withheld from 

Plaintiff Mortensen and the other members of the Paid Users Class. 

282. Yahoo’s acts, omissions, misrepresentations, and practices alleged herein 

violated the following provisions of the CLRA, Civil Code § 1770, which provides, in 

relevant part, that:

(a) The following unfair methods of competition and unfair or deceptive acts or 

practices undertaken by any person in a transaction intended to result or which results 

in the sale or lease of goods or services to any consumer are unlawful:

(5) Representing that goods or services have sponsorship, approval, 

characteristics, ingredients, uses, benefits, or quantities which they do not have ...

(7) Representing that goods or services are of a particular standard, quality, or 

grade . . . if they are of another.

(14) Representing that a transaction confers or involves rights, remedies, or 

obligations which it does not have or involve, or which are prohibited by law.

(16) Representing that the subject of a transaction has been supplied in accordance 

with a previous representation when it has not.

283. Yahoo stored the PII of Plaintiff Mortensen and the other members of the Paid 

Users Class in its electronic and consumer information databases. Yahoo represented to 

Plaintiff Mortensen and the other members of the Paid Users Class that its PII databases were 

secure and that customers’ PII would remain private. Yahoo engaged in deceptive acts and 

business practices by providing in its website that “protecting our systems and our users’ 

information is paramount to ensuring Yahoo users enjoy a secure user experience and 

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maintaining our users’ trust.” Yahoo represented that it has “physical, electronic, and 

procedural safeguards that comply with federal regulations to protect personal information 

about you.”74

284. Yahoo knew or should have known that it did not employ reasonable 

measures to keep the PII or financial information of Plaintiff Mortensen and the other 

members of the Paid Users Class secure and prevent the loss or misuse of that information. In 

fact, Yahoo violated its commitment to maintain the confidentiality and security of the PII of 

Plaintiff Mortensen and the other members of the Paid Users Class, and failed to comply with 

its own policies as well as applicable laws, regulations, and industry standards relating to 

data security. 

285. Yahoo’s deceptive acts and business practices induced Plaintiff Mortensen 

and the other members of the Paid Users Class to use Yahoo’s online services, and to provide 

their PII and financial information. But for these deceptive acts and business practices, 

Plaintiff Mortensen and the other members of the Paid Users Class would not have provided 

their PII to Yahoo or signed up for the supposedly secure services.

286. Plaintiff Mortensen and the other members of the Paid Users Class were 

harmed as the result of Yahoo’s violations of the CLRA because their PII and financial 

information were compromised, placing them at a greater risk of identity theft and of their 

PII and financial information being disclosed to third parties without their consent. Plaintiff 

Mortensen and the other members of the Paid Users Class also suffered diminution in value 

of their PII in that it is now easily available to hackers on the Dark Web. Plaintiff Mortensen 

and the other members of the Paid Users Class have also suffered consequential out of pocket 

losses for procuring credit freeze or protection services, identity theft monitoring, and other 

expenses relating to identity theft losses or protective measures.

 74 See supra note 71.

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287. Plaintiff Mortensen and the other members of the Paid Users Class suffered 

injury in fact and lost money or property as the result of Yahoo’s failure to secure their PII 

and financial information. 

288. As the result of Yahoo’s violation of the CLRA, Plaintiff Mortensen and the 

other members of the Paid Users Class are entitled to compensatory and exemplary damages, 

an order enjoining Yahoo from continuing the unlawful practices described herein, a 

declaration that Yahoo’s conduct violated the CLRA, attorneys’ fees, and the costs of 

litigation. 

289. Pursuant to Civil Code § 1782, on September 30, 2016, in the case of Myers, 

et al., v. Yahoo! Inc., Case No. 16-cv-2391, filed in the Southern District of California and 

consolidated with this action, Plaintiff Paul Dugas, on behalf of themselves and all others 

similarly situated, notified Yahoo in writing by certified mail of the alleged violations of 

section 1770 and demanded that the same be corrected. In addition, on April 12, 2017, the 

named Plaintiffs in the original Consolidated Class Action Complaint served an additional 

notice under section 1782.

ADDITIONAL CLAIMS ALLEGED ON BEHALF OF THE CALIFORNIA 

SUBCLASS ONLY

Twelfth Claim for Relief

Violation of California’s Customer Records Act – Inadequate Security

(Cal. Civ. Code § 1798.81.5)

290. Plaintiffs Heines and Dugas repeat, reallege, and incorporate by reference the 

allegations contained in paragraphs 1 through 179 as though fully stated herein.

291. Plaintiffs Heines and Dugas bring this claim on behalf of the California 

Subclass. 

292. California Civil Code section 1798.80, et seq., known as the “Customer 

Records Act” (“CRA”) was enacted to “encourage business that own, license, or maintain 

personal information about Californians to provide reasonable security for that information.” 

Cal. Civ. Code § 1798.81.5(a)(1). 

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293. Section 1798.81.5, subdivision (b) of the CRA requires any business that 

“owns, licenses, or maintains personal information about a California resident” to 

“implement and maintain reasonable security procedures and practices appropriate to the 

nature of the information,” and “to protect the personal information from unauthorized 

access, destruction, use, modification, or disclosure.” Section 1798.81.5, subdivision 

(d)(1)(B) defines “personal information” as including “A username or email address in 

combination with a password or security question and answer that would permit access to an 

online account.” “Personal information” also includes an individual’s first name or first 

initial in combination with a social security number, driver’s license number, account number 

or credit or debit card number and access code, medical information, or health insurance 

information. Cal. Civ. Code § 1798.82(h).

294. Defendants are businesses that own, license, or maintain personal information 

about California residents. As alleged in detail above, Defendants failed to “implement and 

maintain reasonable security procedures and practices appropriate to the nature of the 

information,” and “to protect the personal information from unauthorized access, destruction, 

use, modification, or disclosure,” resulting in the 2013 Breach, the 2014 Breach, and the 

Forged Cookie Breach.

295. As the direct and legal result of Defendants’ violation of section 1798.81.5, 

Plaintiffs Heines and Dugas and the members of the California subclass were harmed 

because their PII and financial information were compromised, placing them at a greater risk 

of identity theft and their PII and financial information disclosed to third parties without their 

consent. Plaintiffs and Class members also suffered diminution in value of their PII in that it 

is now easily available to hackers on the Dark Web. California members of the Small 

Business Users Class and members of the Paid User Class were damaged to the extent of all 

or part of the amounts they paid for Defendants’ services, because those services were either

worth nothing or worth less than was paid for them because of their lack of security. 

Plaintiffs Heines and Dugas and the California subclass have also suffered consequential out 

of pocket losses for procuring credit freeze or protection services, identity theft monitoring, 

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and other expenses relating to identity theft losses or protective measures. The California 

subclass members are further damaged as their PII remains Defendants’ possession, without 

adequate protection, and is also in the hands of those who obtained it without their consent.

296. Plaintiff Heines and Dugas and the California subclass seek all remedies 

available under Cal. Civ. Code § 1798.84, including, but not limited to: (a) damages suffered 

by Plaintiffs and the other class members as alleged above and equitable relief.

297. Defendants’ misconduct as alleged herein is fraud under Civil Code § 

3294(c)(3) in that it was deceit or concealment of a material fact known to the Defendants 

conducted with the intent on the part of Defendants of depriving Plaintiffs and the Class of 

“legal rights or otherwise causing injury.” In addition, Defendants’ misconduct as alleged 

herein is malice or oppression under Civil Code § 3294(c)(1) and (2) in that it was despicable 

conduct carried on by Defendants with a willful and conscious disregard of the rights or 

safety of Plaintiffs and the Class and despicable conduct that has subjected Plaintiffs and the 

Class to cruel and unjust hardship in conscious disregard of their rights. As a result, Plaintiffs 

and the Class are entitled to punitive damages against Defendants under Civil Code § 

3294(a). 

Thirteenth Claim for Relief

Violation of California’s Customer Records Act – Delayed Notification

(Cal. Civ. Code § 1798.82)

298. Plaintiffs Heines and Dugas repeat, reallege, and incorporate by reference the 

allegations contained in paragraphs 1 through 179 as though fully stated herein.

299. Plaintiffs Heines and Dugas bring this claim on behalf of the California 

Subclass. 

300. Section 1798.82 of the California Civil Code requires any “person or business 

that conducts business in California, and that owns or licenses computerized data that 

includes personal information” to “disclose any breach of the security of the system 

following discovery or notification of the breach in the security of the data to any resident of 

California whose unencrypted personal information was, or is reasonably believed to have 

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been, acquired by an unauthorized person.” Under section 1798.82, the disclosure “shall be 

made in the most expedient time possible and without unreasonable delay ...” 

301. The statute further provides: “Any person or business that maintains 

computerized data that includes personal information that the person or business does not 

own shall notify the owner or licensee of the information of any breach of the security of the 

data immediately following discovery, if the personal information was, or is reasonably 

believed to have been, acquired by an unauthorized person.” Cal. Civ. Code § 1798.82(b).

302. Any person or business that is required to issue a security breach notification 

under the CRA shall meet all of the following requirements: 

(1) The security breach notification shall be written in plain language; 

(2) The security breach notification shall include, at a minimum, the following 

information: 

(A) The name and contact information of the reporting person or 

business subject to this section; 

(B) A list of the types of personal information that were or are 

reasonably believed to have been the subject of a breach; 

(C) If the information is possible to determine at the time the notice is 

provided, then any of the following: 

(i) the date of the breach, 

(ii) the estimated date of the breach, or 

(iii) the date range within which the breach occurred. The 

notification shall also include the date of the notice; 

(D) Whether notification was delayed as a result of a law enforcement 

investigation, if that information is possible to determine at the time 

the notice is provided; 

(E) A general description of the breach incident, if that information is 

possible to determine at the time the notice is provided; and 

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(F) The toll-free telephone numbers and addresses of the major credit 

reporting agencies if the breach exposed a social security number or a 

driver’s license or California identification card number. 

303. The Data Breaches described previously in this First Amended Consolidated 

Class Action Complaint each constituted a “breach of the security system” of Defendants.

304. As alleged above, Defendants unreasonably delayed informing members of 

the California subclass about the 2013 Breach, 2014 Breach, and the Forged Cookies Breach, 

affecting the confidential and non-public PII and financial information of Plaintiffs Heines 

and Dugas and the members of the California subclass, after Defendants knew each of those 

Data Breaches had occurred.

305. Defendants failed to disclose to Plaintiffs Heines and Dugas and the members 

of the California subclass, without unreasonable delay and in the most expedient time 

possible, the breach of security of their unencrypted, or not properly and securely encrypted, 

PII and financial information when Defendants knew or reasonably believed such 

information had been compromised.

306. Yahoo’s ongoing business interests, and in particular its impending sale to 

Verizon, gave Defendants incentive to conceal the 2013, 2014, and Forged Cookie Data 

Breaches from the public to ensure continued revenue and a high stock price for the sale.

307. Upon information and belief, no law enforcement agency instructed 

Defendants that notification to Plaintiffs Heines and Dugas and the members of the 

California subclass would impede its investigation.

308. As a result of Defendants’ violation of Cal. Civ. Code § 1798.82, Plaintiffs 

Heines and Dugas and the members of the California subclass were deprived of prompt 

notice of the 2013, 2014, and Forged Cookie Breaches and were thus prevented from taking 

appropriate protective measures, such as changing their password, canceling their account, 

securing identity theft protection, or requesting a credit freeze. These measures would have 

prevented some or all of the damages suffered by Plaintiffs Heines and Dugas and the 

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members of the California subclass because their stolen information would not have any 

value to identity thieves. 

309. For example, had Defendants provided Plaintiff Heines with prompt notice of 

the 2014 Breach, rather than two years later, she could have changed her security information 

and likely could have prevented the theft of her monthly Social Security Disability payment 

in 2015 and its unauthorized use to buy gift cards. 

310. As a result of Defendants’ violation of Cal. Civ. Code § 1798.82, Plaintiffs 

Heines and Dugas and the members of the California subclass suffered incrementally 

increased damages separate and distinct from those simply caused by the breaches 

themselves. 

311. Plaintiffs Heines and Dugas and the members of the California subclass seek 

all remedies available under Cal. Civ. Code § 1798.84, including, but not limited to: (a) 

damages suffered by Plaintiffs and the other class members as alleged above and equitable 

relief.

312. Defendants’ misconduct as alleged herein is fraud under Civil Code § 

3294(c)(3) in that it was deceit or concealment of a material fact known to the Defendants 

conducted with the intent on the part of Defendants of depriving Plaintiffs and the Class of 

“legal rights or otherwise causing injury.” In addition, Defendants’ misconduct as alleged 

herein is malice or oppression under Civil Code § 3294(c)(1) and (2) in that it was despicable 

conduct carried on by Defendants with a willful and conscious disregard of the rights or 

safety of Plaintiffs and the Class and despicable conduct that has subjected Plaintiffs and the 

Class to cruel and unjust hardship in conscious disregard of their rights. As a result, Plaintiffs 

and the Class are entitled to punitive damages against Defendants under Civil Code § 

3294(a). 

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PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, individually and on behalf of the other Class members, 

respectfully requests that this Court enter an Order:

(a) Certifying the United States Class and California Subclass, Small Business 

Users’ Class, Israel Class, and Paid Users Class, and appointing Plaintiffs as Class 

Representatives; 

(b) Finding that Defendants’ conduct was negligent, deceptive, unfair, and 

unlawful as alleged herein;

(c) Enjoining Defendants from engaging in further negligent, deceptive, unfair, 

and unlawful business practices alleged herein;

(d) Awarding Plaintiffs and the Class members actual, compensatory, and 

consequential damages;

(e) Awarding Plaintiffs and the Class members statutory damages and penalties, 

as allowed by law;

(f) Awarding Plaintiffs and the Class members restitution and disgorgement;

(g) Requiring Defendants to provide appropriate credit monitoring services to 

Plaintiffs and the other class members; 

(h) Awarding Plaintiffs and the Class members punitive damages for the Third, 

Fourth, Seventh, and Tenth through Thirteenth claims for relief;

(i) Awarding Plaintiffs and the Class members pre-judgment and post-judgment 

interest;

(j) Awarding Plaintiffs and the Class members reasonable attorneys’ fees costs 

and expenses, and;

(k) Granting such other relief as the Court deems just and proper.

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JURY TRIAL DEMANDED

Plaintiffs demand a trial by jury of all claims in this First Amended Consolidated 

Amended Class Action Complaint so triable.

Dated: December 15, 2017 MORGAN & MORGAN COMPLEX 

LITIGATION GROUP

/s/ John A. Yanchunis 

JOHN A. YANCHUNIS

Attorney for Plaintiffs

On behalf of Plaintiffs’ Lead Counsel 

and Executive Committee

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