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Court rejects Jetro’s argument in attempt to recoup fines and penalties over breaches

Posted on May 20, 2016 by Dissent

Long-time readers will remember the Restaurant Depot/Jetro breaches reported in 2011 and 2012. It appears that Jetro tried a novel approach to recovering some of the monies the breach cost them. As Dennis S. Klein, Jeffrey B. Goldberg, and Tyler Grove of Hughes Hubbard & Reed LLP explain, the court wasn’t buying their novel argument:

… To allow its customers to use MasterCards for purchases, Jetro contracted with PNC Bank to process MasterCard transactions. PNC Bank, in turn, contracted with MasterCard.

As a result of the data breaches, and pursuant to their contract, MasterCard imposed fines, penalties, and fees amounting to $7 million on PNC Bank. PNC Bank, in turn, withheld that amount from money otherwise due to Jetro in accordance with its contract with Jetro. Jetro responded by filing suit against MasterCard, making a novel claim to recover the $7 million withheld by PNC Bank under the doctrine of equitable subrogation. Equitable subrogation is traditionally applied in insurance claims, to allow an insurer to recover money paid to its insured from the third-party who caused the loss. Jetro argued that MasterCard wrongfully imposed the fines, penalties, and fees on PNC Bank. Because Jetro effectively paid for the wrongful “loss” caused to PNC Bank by MasterCard, Jetro is entitled to recover the money from MasterCard.

The court, however, rejected Jetro’s argument.

Read more on Hughes Hubbard & Reed LLP.

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