PHILADELPHIA - With tens of millions of dollars of liability at stake, Fifth Third Bank has asked a U.S. Appeals Court here to review a recent ruling by a three-member panel of the court that would enable Pennsylvania State Employees CU and hundreds of other credit unions to seek damages in credit card breaches from third-party processors.
The regional bank giant told the U.S. Court of Appeals for the Third Circuit it will seek an en banc review of the ruling, which said the credit union and others can seek damages from the bank. The bank was a merchant acquirer for BJ’s, where card data for hundreds of credit unions was compromised in 2004.
Under an en banc review, all 21 judges of the appeals court would participate.
The stakes are enormous for Fifth Third, as it was also the merchant acquirer in the TJX case and a court ruling in favor of the Pennsylvania credit union giant could open the door to hundreds of other claims from affected credit unions and banks.
Panel Issues Unanimous Ruling
In its ruling, a three-judge panel of the court unanimously agreed to send the case back for a hearing by the district court, which had dismissed it because it found that third parties, such as the $3-billion credit union, had no standing to sue the merchant acquirer for card breaches.
The ruling also cleared the way for a separate suit filed in the case by Sovereign Bank. Lawyers for Fifth Third Bank, based in Cincinnati, did not return phone calls seeking comment.
Greg Smith, CEO of PSECU, said last week they were notified that Visa changed its operating rules in 2006 to prohibit card issuers from suing so-called third-party beneficiaries, like Fifth Third, in card breaches. But he plans to pursue the BJ’s case, which occurred before the rules change, in order to set a precedent for the many credit unions who have expended significant funds to reissue cards and absorb fraud related losses in the myriad of cases that have sprung up over the past few years.
“Our complaint is not with Visa, it’s with third parties, including BJ’s and Fifth Third,” said Smith, summarizing hi cause.
Phillip Kaufman, a lawyer representing PSECU in the case, said Fifth Third has “an uphill battle” in getting the full appeals court to overturn the panel’s ruling, noting that first they have to agree to hear the en banc review, then overrule their own court colleagues.
In its suit, the credit union claims that even though the cards’ data was breached at BJ’s, Fifth Third had the responsibility to ensure that BJ’s was complying with the Visa operating regulations which bar merchants from retaining credit card information after completion of a transaction.
Pennsylvania State Employees says it spent almost $100,000 to reissue 20,000 Visa cards and to take other security measures during the BJ’s case. More than 165 credit unions were impacted by the breach and forced to recall and reissue hundreds of thousands of cards in the case.
CUNA Mutual Appeal In Progress
A suit brought by CUNA Mutual Group on behalf of the credit unions was dismissed by a state court in Massachusetts, where BJ’s is based. CUNA Mutual has appealed the dismissal to a state appeals court.
In papers filed with the appellate court, Fifth Third argued that grounds exist for filing a petition for rehearing en banc the portion of the ruling that sent the case back to the lower court.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
