A Payment Processing Company May Be Liable For Economic Losses Suffered By Banks When Hackers Breach Computers That Contain Confidential Payment Data

A Payment Processing Company May Be Liable For Economic Losses Suffered By Banks When Hackers Breach Computers That Contain Confidential Payment Data

by Onyinyechi Muilenburg

A recent case of interest out of the Fifth Circuit holds that a payment processing company may be liable for economic losses suffered by banks that issued debit and credit cards when hackers breached computers that contained confidential payment data.

In this case, a group of hackers breached the data systems of Heartland Payment Systems, Inc. (“Heartland”), compromising confidential information belonging to customers of the plaintiff banks (“Issuer Banks”).  See Lone Star National Bank, et al. v. Heartland Payment Systems, 729 F.3d 421 (5th Cir. Sept. 3, 2013) (slip op.).  The Issuer Banks sued Heartland claiming negligence in not properly protecting the confidential information for millions of consumers who are customers of Issuer Banks.  The Issuer Banks suffered economic losses due to replacing credit and debit cards and issuing refunds to the bank customers.  The Fifth Circuit Court of Appeals held that the economic loss doctrine did not preclude the Issuer Banks’ negligence claim against Heartland.

The court held that Heartland had reason to foresee that the Issuer Banks would be the entities to suffer economic losses in the event that Heartland was negligent in protecting data.  The Issuer Banks constituted an identifiable class; the identities, nature, and number of the victims were easily foreseeable as the Issuer Banks were the very entities to which Heartland sent payments and card information.  The court further found that Heartland would not be exposed to boundless liability, but rather to the reasonable amount of loss from a limited number of entities.  The court also found that, in the absence of a tort remedy, the Issuer Banks would be left with no remedy for Heartland’s alleged negligence, defying notions of fairness, common sense and morality.

No information in this article is intended to constitute legal advice. For specific legal advice, please contact an attorney.

If you have any questions or would like more information about the economic loss rule or the application of the economic loss rules to negligence claims, please contact William “Pat” Huttenbach at 713.220.9184 or phuttenbach@hirschwest.com.