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Heartland Lawsuit Dismissed, “Insufficient Evidence” Of Weak Security
December 10th, 2009
A federal judge dismissed a data breach-related lawsuit against Heartland Payment Systems on Monday (Dec. 7), saying that the plaintiffs hadn't proved any of their allegations that Heartland knew it had inadequate security and lied about it to shareholders. The judge's detailed ruling sheds light on the environment data breach retail victims are likely to face in court and could provide some guidance on how they should act when discussing those breaches.
Unlike earlier retail data breach lawsuits—typically with consumers or banks as plaintiffs—this was a shareholder action and merely needed to prove that Heartland execs mislead the public about their security status. U.S. District Court Judge Anne E. Thompson, sitting in New Jersey, concluded Heartland execs had not. She listened to recordings of an analyst call to conclude that, in full context, the processor's security claims were technically true.
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5 Comments | Read Heartland Lawsuit Dismissed, “Insufficient Evidence” Of Weak Security
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December 12th, 2009 at 2:59 pm
As far as I know, the SEC investigation is still underway, and an indictment would certainly see this lawsuit revisited, perhaps in another jurisdiction – either where a plaintiff resides, where a data center is located, or Cal-litigate-afornia, where it fairly easy to sue anyone.
The judge’s opinion was strong regarding the likelihood that Carr and Baldwin will be sanctioned for misleading statements to investors, but it certainly did not dismiss the notion that material adverse information was deliberately withheld from investors between December of 2007 and January of 2009.
The dismissal also does little to undermine charges of possible insider trading by HPS executives, the crux of the SEC investigation.
And let us not forget that more financial impact form the breach cleanup is to be expected, which already had Heartland backpedaling on their last quarterly earnings statement to the tune of nearly $80M.
The ruling was definitely a victory for Heartland, but potential liabilities still threaten the company’s viability, with a their market cap at about $430m.
If Heartland’s liabilities begin to approach the $200m to $250m range, Heartland could likely file for BK. We certainly have not heard the last of this breach.
December 12th, 2009 at 4:50 pm
Anthony is clearly correct that anyone can sue anyone for anything in this country and the SEC can probe almost anything it wants. But whether or not you happen to agree with the federal judge’s decision in this case, her decision was clearly articulate. In other words, she laid out her thinking and evidence for all to see, so observers can judge for themselves whether the ruling has merit.
But I do take slight exception to Anthony’s comment that the judge’s ruling “certainly did not dismiss the notion that material adverse information was deliberately withheld from investors between December of 2007 and January of 2009.” Actually, it did indeed dismiss that. That was the basis of her ruling, that she saw no material information deliberately withheld from anybody. You can certainly disagree with her conclusion but you can’t say that she didn’t dismiss that scenario. She clearly did.
December 12th, 2009 at 5:06 pm
Very true – and I should clarify by saying that given the outcome of the SEC investigation, Heartland executives could very well face a charge of withholding material information both criminally and in civil litigation.
The judges decision is not based on all the facts and information that may be available after the SEC weighs in, but is based on the facts and arguments presented in the plaintiffs complaint, which was dismissed.
And a dismissal is not an acquittal. It does not necessarily reflect on the validity of the allegations per se, as much as it is a ruling on the validity of the complaint as filed.
I would not rule anything out yet.
December 12th, 2009 at 10:49 pm
It’s absolutely fair to say that an SEC probe could easily be aware of things that the a civil lawsuit judge may not.
But, to be fair, a dismissal in a federal civil lawsuit is more significant than you’re suggesting. It either indicates a lack of validity to the complaint or VERY bad counsel filing that complaint. The threshold to have a civil lawsuit proceed to trial is quite low in the U.S., and I’ve covered enough ludicrous civil trials to know that all too well.
For a judge–especially a federal judge–to dismiss a lawsuit, the judge pretty much has to conclude that the accusations and support points made are absolutely without merit. In this instance, the complaint didn’t even support its own accusations. It’s not like the plaintiffs accused Heartland of XXXX and Heartland disputed it with documents or a witness. The judge looked at the plaintiff’s own claims and concluded that they weren’t making a good enough case to even go to trial.
Again, Anthony, I’m agreeing with you that an SEC probe could go in a different direction, but let’s not make light of a federal judge ordering a complete dismissal with prejudice. That’s not something that happens every day.
December 13th, 2009 at 12:04 am
Agreed!