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The economic loss doctrine is no bar to a tort claim regardless of the 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.
The Issuer Banks have contracts with Visa and MasterCard that allow them to issue payment cards, including both credit and debit cards, to their customers. Two acquirer banks, KeyBank and Heartland Bank (together, the "Acquirer Banks"), were members of the Visa and MasterCard networks. Heartland contracted with the Acquirer Banks to process their transactions. These contracts required Heartland to comply with the Visa and MasterCard regulations, which contained mechanisms for Visa and MasterCard network members to recoup losses in the event of a data breach. Such a data breach occurred when hackers infiltrated Heartland's data systems and stole payment card information. As a result, the Issuer Banks alleged that they incurred costs associated with replacing the compromised cards and reimbursing customers for fraudulent charges. Lacking a written contract with Heartland, the Issuer Banks asserted various claims, including negligence and contract claims as third party beneficiaries of Heartland's contracts with other entities. The district court dismissed the Issuer Banks' claims, holding that even under New Jersey law, the economic loss doctrine would bar the Issuer Banks' negligence claim. The Issuer Banks timely appealed the district court's dismissal of their negligence claim against Heartland.
Did the economic loss doctrine bar the Issuer Banks’ negligence claim, thereby warranting the dismissal of the complaint?
The Court held that where hackers breached a payment system's data, compromising confidential information belonging to banks' customers, the dismissal of the Issuer Banks’ negligence claim at the motion to dismiss stage as barred by the economic loss doctrine was error because the banks constituted an identifiable class that the system should have reasonably foreseen was likely to be injured by its conduct, the identities, nature, and number of victims were easily foreseeable, and the system would not be exposed to boundless liability, such that even absent physical harm, the system might owe the banks a duty of care and might be liable for their purely economic losses. The Court held that in the absence of a tort remedy, the banks would be left with no remedy for the system's alleged negligence, which would defy notions of fairness, common sense, and morality.