Director Liability for Cybersecurity Risks


If a corporation is the target of a cyberattack resulting in a data breach, its board may be the target of a shareholder derivative action claiming breach of fiduciary duty. A recent example is Palkon v. Holmes, No. 14-cv-01234 (D.N.J.), in which a shareholder of Wyndham Worldwide Corporation sued its directors and senior officers, claiming that their failure to implement adequate information-security policies allowed three data breaches, resulting in theft of over 600,000 customers’ personal and financial data. Shareholder derivative actions like Palkon allow plaintiffs to avoid one of the major obstacles to a data-breach class action against the corporation: proving that the purported class members suffered common damages resulting from theft of their personal information. In a derivative action against the board, damages are suffered proportionally by all shareholders based on the harm to the corporation through, for example, decreased stock prices. Because damages from privacy breaches often are not covered by directors and officers (D&O) insurance, directors may face significant personal exposure.

This article addresses the potential liability of directors arising from a data breach, and how they can help protect themselves and their company from liability. We focus on Delaware law because, practically speaking, it states the national standard for director fiduciary duty.

Originally published in corporate counsel on August 6, 2014.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Mintz Levin | Attorney Advertising

Written by:


Mintz Levin on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.