Court dismisses most breach claims against Heartland by banks

Nine banks want Heartland to pay for damages related to 2008 breach

A U.S. district court in Texas has dismissed all but one of the claims brought by several banks against Heartland Payment Systems over the massive data breach the payment processor disclosed in January 2009 .

In a 62-page ruling last week, Judge Lee Rosenthal of the U.S. District Court for the Southern District of Texas ruled that the banks had basically failed to state proper claims for seeking damages from Heartland.

A total of nine banks filed suit against Heartland, claiming it had acted negligently, violated consumer protection laws in multiple states and breached its contractual obligations to the financial institutions.

In his ruling, Rosenthal dismissed the negligence claims and the contractual obligation claims. Rosenthal did, however, leave room for the banks to file an amended breach-of-contract complaint in future if they chose to. He also let stand a claim the banks had filed under the Florida Deceptive and Unfair Trade Practices Act.

Heartland in 2009 disclosed that unknown hackers had broken into its networks and improperly accessed data on close to 130 million credit and debit cards over a period of several months.

The breach, which continues to be the largest ever involving payment cards, resulted in Heartland being hit with a flurry of lawsuits by consumers as well as by banks that had to block, recall and reissue millions of compromised cards.

The multiple lawsuits were consolidated into two master complaints, one on behalf of the consumers and the other on behalf of the banks. Heartland is based in Princeton, N.J. but the cases are being heard in Texas because that's where the company's main data centers are located.

Last year, the court approved a proposal by Heartland to settle the consumer claims against it for $4 million.

Under that settlement, Heartland agreed to pay up to $175 each to individuals for out-of-pocket expenses stemming from telephone usage or postage costs tied to card cancellations and replacement, or for any unreimbursed charges resulting from unauthorized use of their card. The company also agreed to pay up to $10,000 for those who might have become victims of identity theft as a result of the breach.

In dismissing most of the claims brought against Heartland, Rosenthal ruled that the payment processor had no direct or implied contractual obligation with the banks, at least to the extent stated in their complaint. As a result, they cannot make a claim for breach of contract, he noted.

Rosenthal also ruled that the banks could not seek damages from Heartland on negligence claims because the relevant laws cited do not allow for tort damages in situations where there is no physical or property injury involved.

The judge's decision was first reported by Courthouse News.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at @jaivijayan or subscribe to Jaikumar's RSS feed . His e-mail address is jvijayan@computerworld.com.

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