Data Breach Forces Lawsuit

A new “target” on their backs: Target’s officers and directors face derivative action arising out of data breach (Global Regulatory Enforcement Law Blog, 30 Jan 2014) – In the wake of its massive data breach, Target now faces a shareholder derivative lawsuit, filed January 29, 2014. The suit alleges that Target’s board members and directors breached their fiduciary duties to the company by ignoring warning signs that such a breach could occur, and misleading affected consumers about the scope of the breach after it occurred. Target already faces dozens of consumer class actions filed by those affected by the breach, putative class actions filed by banks, federal and state law enforcement investigations, and congressional inquiries. This derivative action alleges that Target’s board members and directors failed to comply with internal processes related to data security and “participated in the maintenance of inadequate cyber-security controls.” In addition, the suit alleges that Target was likely not in compliance with the Payment Card Industry’s (PCI) Data Security Standards for handling payment card information. The complaint goes on to allege that Target is damaged by having to expend significant resources to: investigate the breach, notify affected customers, provide credit monitoring to affected customers, cooperate with federal and state law enforcement agency investigations, and defend the multitude of class actions. The derivate action also alleges that Target has suffered significant reputational damage that has directly impacted the retailer’s revenue.

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