Fifth Circuit Revives Negligence Claims for Purely Economic Losses in Connection with Heartland Payment Systems Cyber-Attack Litigation

by Jackson Walker

On September 3, 2013, in Lone Star Nat'l Bank N.A. v. Heartland Payment Sys., Inc., the U.S. Court of Appeals for the Fifth Circuit held that "the economic loss doctrine under New Jersey law does not preclude the Issuer Banks' negligence claim against Heartland at the motion to dismiss stage," potentially opening the door to countless future classes of plaintiffs seeking tort remedies arising out of cyber-attacks and resulting data breaches.  

This case arose after hackers infiltrated Heartland's data systems, causing a data breach exposing over 130 million customer records –including credit and debit card data-- resulting in over $6 billion of damages. These damages included the economic losses incurred by the Plaintiffs (known as Issuer Banks), in the form of replacement cards and reimbursements to customers for fraudulent charges associated with Visa and MasterCard credit and debit cards.
When a customer uses a credit or debit card at a merchant, the merchant sends the customer's account information to the Acquirer Bank, which then forwards that information to a processor.  In this case, the processor was Heartland, who forwards the customer's information back to the Issuer Bank that ultimately approves or disapproves the transaction. 
In this tripartite relationship, the Plaintiff Issuer Banks did not have a contract directly with Heartland, but the Acquirer Banks required Heartland to comply with the Visa and MasterCard regulations, "which contain[ed] mechanisms for Visa and MasterCard network members to recoup losses in the event of a data breach." Accordingly, Heartland argued that Plaintiffs' negligence claims were barred by the economic loss rule, which typically limits a plaintiff seeking to recover purely economic losses, such as lost profits, to his contractual remedies. 
While the Fifth Circuit agreed with Heartland that the "economic loss doctrine under Texas law would bar the Issuer Banks' negligence claim," it nevertheless found that the economic loss doctrine in New Jersey permits negligence claims even when the damages are purely economic. 
The Fifth Circuit relied on People Express Airlines, Inc., v. Consolidated Rail Corp., 495 A.2d 107 (N.J. 1985), where the court held "the economic doctrine does not bar tort recovery in every case where the plaintiff suffers economic harm without any attendant physical harm." In People Express, the New Jersey Supreme Court limited their holding, however, to situations where the plaintiffs consisted of an identifiable class "whom the defendant knows or has reason to know are likely to suffer such damages from its conduct." The court stressed the plaintiff must be foreseeable in the "type of persons," "the certainty or predictability of their presence, the approximate numbers of those in the class, as well as the type of economic expectations disrupted." The court did not want to impose "boundless liability."
The Court also relied on Dynalectric Co. v. Westinghouse Electric Corp., 803 F. Supp. 985, 986–87 (D.N.J. 1992) where the court interpreted People Express "as allowing tort recovery for economic losses only when the plaintiff lacks another remedy." 
In holding that the economic loss doctrine allowed the Plaintiffs' negligence claim, the Fifth Circuit reasoned the Issuer Banks were an identifiable class because they were "the very entities to which Heartland sends payment card information." Moreover, the losses to Heartland would not be "boundless," but would be limited to the number of entities to which Heartland sent the information. Finally, the Court reasoned, "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'." The Fifth Circuit decision synchronizes with the New Jersey Supreme Court's reputation as long being a "leader in expanding tort liability." Hakimoglu v. Trump Taj Mahal Assoc., 70 F.3d 291, 295 (3rd Cir. 1995) (Becker, J., dissenting).  
For businesses operating in New Jersey, or with consumers in New Jersey, this decision foreshadows significant potential future exposure in the event of litigation arising from a cyber-attack or other data breach exposing customer information.  For other businesses, it underscores the need to conduct a "cyber audit" to prepare for, if not prevent, a financially devastating cyber-attack and data breach.
CLICK HERE to read a copy of the Fifth Circuit's Opinion.

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.

© Jackson Walker | Attorney Advertising

Written by:

Jackson Walker

Jackson Walker 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 using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*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.