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Banks, credit unions begin to sue Heartland over data breach

Cost of notifying customers, damages sought

March 2, 2009 12:00 PM ET

Computerworld - In an indication of the legal troubles that companies can find themselves in over data breaches these days, several banks and credit unions have begun suing Heartland Payment Systems Inc. over its recently disclosed data breach.

In the six weeks since the potentially massive breach was disclosed, eight banks and credit unions have filed lawsuits against Heartland over its alleged failure to take adequate measures for protecting credit and debt cardholder data.

Heartland said on Jan. 20 that unknown intruders had broken into its network sometime last year and accessed payment card data belonging to an undisclosed number of customers. The breach, thought to possibly be the biggest ever disclosed, has already affected over 500 financial institutions, including a handful in the Bahamas, Bermuda and Canada.

The lawsuits seek compensation from Heartland for the costs that the financial institutions said they've had to bear in notifying affected customers about the breach and in reissuing new payment cards. The lawsuits also claim damages from Heartland for costs of the alleged fraud that the banks claimed have resulted from the breach.

One of the lawsuits was filed by Chimicles & Tikellis LLP in Haverford, Pa., on behalf of Amalgamated Bank in New York; Matadors Community Credit Union in Chatsworth, Calif.; GECU in El Paso, Texas; MidFlorida Federal Credit Union in Lakeland, Fla.; and Farmers State Bank in Marcus, Iowa.

Filed in federal court in New Jersey, the suit charged Heartland with violating the state's consumer protection statutes and for breach of implied contract. The complaint, filed on Feb. 20, also suggested that Heartland should have been the one sending out the notifications to the affected customers, not the card-issuing banks. "Instead of actively participating in resolving the problems that were caused as a result of its negligence and other misconduct, Heartland has essentially taken a backseat and shifted this burden to plaintiffs and class members," the complaint alleged.

Joseph Sauder, a partner with Chimicles & Tikellis, said the lawsuit seeks to recover, on behalf of all affected financial institutions, "the damage they have incurred as a result of the breach. It includes the cost of reissuing the cards and fraudulent activity."

Chimicles & Tikellis is also representing a resident of Woodbury, Minn., and others similarly affected in a separate class-action lawsuit against Heartland.

Sohmer & Stark LLC in Fairfield, N.J., filed another suit on behalf of Simpson, Kansas-based TriCentury Bank and Great Southern Bank in Springfield, Mo. Its complaint alleged that Heartland had been negligent in allowing malicious code to be placed on its processing systems and networks and in properly managing the encryption of cardholder data. The lawsuit also noted Heartland's omissions in failing to implement or comply with the Payment Card Industry Data Security Standard, which is mandated by the card companies.

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