Fifth Circuit Court of Appeals reverses dismissal of negligence claims against Heartland Payment Systems

It seems it isn’t all over for a lawsuit by nine financial institutions against Heartland Payment Systems following a mammoth breach disclosed in January 2009. The Fifth Circuit Court of Appeals reversed the district court’s dismissal of negligence claims and remanded. Here’s part of the opinion, issued yesterday:

Turning to the case sub judice, we hold the economic loss doctrine under New Jersey law does not preclude the Issuer Banks’ negligence claim against Heartland at the motion to dismiss stage. First, the Issuer Banks constitute an “identifiable class” as contemplated by People Express. 495 A.2d at 116. Heartland had reason to foresee the Issuer Banks would be the entities to suffer economic losses were Heartland negligent. See id. The identities, nature, and number of the victims are easily foreseeable, as the Issuer Banks are the very entities to which Heartland sends payment card information. See id. Furthermore, Heartland would not be exposed to “boundless liability,” but rather to the reasonable amount of loss from a limited number of entities. Id. Accordingly, even absent physical harm, Heartland may owe the Issuer Banks a duty of care and may be liable for their purely economic losses. See id.; Carter Lincoln-Mercury, Inc., Leasing Div. v. EMAR Grp., Inc., 638 A.2d 1288, 1294 (N.J. 1994) (holding economic loss doctrine no bar to tort claim regardless of physical harm “if the plaintiff was a member of an identifiable class that the defendant should have reasonably foreseen was likely to be injured by the defendant’s conduct” (citing People Express, 495 A.2d at 116)).

Second, viewing the pleadings in the light most favorable to the Issuer Banks, 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 court declined Heartland’s urging to uphold the district court’s dismissal on any one of four grounds, sending the case back to the district court to consider:

Heartland asserts that even if it owes the Issuer Banks a duty of care under People Express and the economic loss doctrine does not bar the Issuer Banks’ negligence claim at this stage of the litigation, we should affirm the district court on any of four grounds: (1) the Issuer Banks are bound by the allegation in their complaint that Heartland has contracts with Visa and MasterCard, so they should be limited to the contractual remedies available through the Visa and MasterCard networks; (2) Texas law, not New Jersey law, is controlling; (3) the Issuer Banks fail to state a claim under Federal Rule of Civil Procedure 8(a); and (4) some of the Issuer Banks are collaterally estopped from pursuing this negligence claim because the district court’s disposition of their separate claim against the Acquirer Banks involved the same issue. Though “[w]e are free to uphold the district court’s judgment on any basis that is supported by the record,” Zuspann v. Brown, 60 F.3d 1156, 1160 (5th Cir. 1995), we decline to decide these complex issues as they are better addressed by the district court in the first instance. See U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 381 (5th Cir. 2009) (remanding so district court can consider issues in first instance) (citing Breaux v. Dilsaver, 254 F.3d 533, 538 (5th Cir. 2001) (“Although this court may decide a case on any ground that was presented to the trial court, we are not required to do so.”)).

You can access the full opinion here (pdf, 10 pp.).

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