New Republic: Cybersecurity Tort Liability Trend?

Oct 17th, 2013 cyber attack, Law

Paul Rosenzweig recently published an article in New Republic that discusses what he believes is a rising trend in tort law that would establish a common law liability doctrine for consequential damages caused by inadequate or negligent cybersecurity measures.

Rosenzweig argues that the evidence for such a trend can be found in two recent federal appellate court cases: Patco Construction Company Inc. v. People’s United Bank (1st Cir. July 2012) and Lone Star Bank, et. al v. Heartland Payment Systems (5th Cir. Sept. 2013).

In Patco, the plaintiff company’s cyber profile was hacked, giving the attackers Patco’s banking credentials, which were later used to siphon large sums of money out of its People’s United account into an offshore account.

The appellate court found that People’s United Bank’s reliance on password authentication, its choice to overlook transaction-based alerts and unusually large offshore monetary transfers, and reliance on answers to security questions constituted “commercially unreasonable” conduct and reversed the district court’s decision.  The case was remanded and soon thereafter settled out of court.

According to Rosenzweig, this case represents “the first time a financial institution (or any other commercial entity for that matter) had been obligated to settle a claim premised on its own ‘commercially unreasonable’ cybersecurity failures.”

In Lonestar, we see a similar appellate court ruling (although the bank wins in this second case).  After Heartland Payment Systems was hacked in 2009 causing the credit card data of 160 million customers to be lost, the issuing banks sued Heartland to recover the losses from the fraudulent use of stolen data, the cost of replacing credit cards, and the cost of providing consumers with credit monitoring systems.  The suit was initially dismissed by the district court.  On appeal, the court found that the issuing banks had a viable negligence claim against Heartland for its cybersecurity shortcomings and reversed the lower court’s decision.

I’ll leave you with the closing to Rosenzweig’s article:

It is still too early to tell how this may all shake out.  But for now, it looks like we stand at the dawn of a new era of cybersecurity tort liability.  That would be a significant change, if it comes to pan.

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One Response to “New Republic: Cybersecurity Tort Liability Trend?”

  1. […] [Which, as we have discussed in other posts, is not exactly the case?] […]

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Professor William Snyder

Professor William C. Snyderis a member of the faculty of the Institute for National Security and Counter-terrorism at Syracuse University after fifteen years with the United States Department of Justice.

Ryan D. White

Ryan D. WhiteRyan is currently a third year law student at Syracuse University College of Law, and is also pursuing a Master of Public Administration degree from Syracuse’s Maxwell School of Citizenship and Public Affairs. Ryan spent time with Homeland Security Investigations while pursuing his undergraduate degree at Wesleyan University, and spent his first summer of law school as clerk for the U.S. Attorney’s Office in the Western District of New York. He is a member of Syracuse Law Review, the Journal on Terrorism and Security Analysis, and participates in the Veteran’s Legal Clinic. Full biography

Shelby E. Mann

Ryan D. WhiteShelby is a second year law student at the Syracuse University College of Law. She is the 2018-9 Editor in Chief of the Syracuse Law Review, as well as a member of the Journal on Terrorism and Security Analysis, and the senior editor for the Syrian Accountability Project. During her final year at the University of Missouri, she served as a full-time news producer for ABC 17 News. Shelby spent her first summer of law school at the Shelby County District Attorney General's Office in Memphis, Tenn., in the Public Corruption and Economic Crimes Unit. Full biography

Christopher w. FolkChristopher W. Folk

is a 2017 graduate of SU College of Law. A non-traditional student, Christopher returned to academia after spending nearly twenty years in the high tech industry. Christopher served in the Marine Corps, graduated from Cornell University with a B.S. In Applied Economics and Business Management, attended Northeastern University’s High-Tech MBA Program and received a M.S. In Computer Information Systems. Christopher previously worked in Software Engineering. Christopher is currently serving his second term as Town Justice for the Town of Waterloo. Christopher externed with a Cybersecurity firm in the Washington, D.C. area between his first and second year at SU College of Law. Full biography

Anna Maria Castillo

Anna Maria Castillois 2016 graduate of Syracuse College of Law. She also holds a Master of Arts in International Relations from Syracuse University's Maxwell School of Citizenship and Public Affairs. She has interned at a London-based think-tank that specializes in transnational terrorism and global security and at the legal department of a defense contractor. She served as an executive editor in the Syracuse Law Review. Full biography

Jennifer A. CamilloJennifer A. Camillo

is a 2015 graduate of Syracuse College of Law and is a prosecutor. She has served as a law clerk in the United States Attorney’s Office for the Northern District of New York and the Cayuga County District Attorney’s Office and as an extern in the Oneida County District Attorney’s Office. She was a member of the Syracuse National Trial Team and was awarded the Tiffany Cup by the New York Bar Association for her trial advocacy achievements.

Tara J. PistoreseTara J. Pistorese

holds Juris Doctor and Masters of Public Administration degrees from Syracuse University's Maxwell School of Citizenship and Public Affairs and its College of Law. She wrote for this blog when a student. She is now a member of the U.S. Army Judge Advocate General's Corps.

Benjamin Zaiser

is both a scholar and a Federal Agent of the Federal Criminal Police Office of Germany. (Opinions expressed here are his own and not any part of official duty.) Full biography


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