Online Banking and “Reasonable Security” Under the Law: Breaking New Ground?
David Navetta writes:
With the report of another data security-related lawsuit involving online banking (another 2009 lawsuit referenced here involved an alleged loss of over $500,000), and a recent victory for a plaintiff on a summary judgment motion in a similar online banking data security breach case, the question arises whether online banking breaches will yield some substantive case law on the issue of “reasonable” security procedures as a matter of law. Ironically, this question may be answered by reference to a 20 year old model code (UCC 4A) originally drafted to address technological advances from that era. This post explores two complaints recently filed against banks for online banking (Patco Construction Co. v. People’s United Bank (“PATCO”) and JM Test Systems, Inc. v. Capital One Bank (“JMT”)) and a court’s ruling on a motion for summary judgment in similar lawsuit (Shames-Yeakel v. Citizens Bank Memo and Memo Order on Motion for Summary Judgment – “Shames-Yeakel” case). In short, since the Shames-Yeakel case proceeded past the “damages” pleading phase, it (and possibly these other online breach suits) reveals how some courts view security “standards” and approach the question of whether a company has achieved “reasonable security.” I also believe they demonstrate the difficulty defendants face if they have to defend their security measures in a litigation context after a security breach.
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