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Director & Officer (D&O) Liability for Data Breaches After Palkon v. Holmes

Between April 2008 and January 2010, Wyndham Worldwide Corporation suffered three data breaches that resulted in the theft of credit card information of over 600,000 customers. Plaintiff Dennis Palkon later filed a derivative action entitled Palkon v. Holmes in the U.S. District Court for the District of New Jersey. He alleged that the entire board, president/CEO, and general counsel of Wyndham breached their fiduciary duties of care and loyalty to the company, and wasted corporate assets, by failing to implement a system of internal controls to protect customers’ personal and financial information, and by causing or allowing the company to conceal the data breaches from investors.

On October 20, 2014, the court dismissed the complaint with prejudice. Palkon is the first decision in a shareholder derivative action against directors arising out of a data breach. The decision illustrates some of the steps that directors can take to reduce their risk of cyber-related liability. Palkon underscores the importance of direct board involvement in cybersecurity, both before and after any data breach occurs.

©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume IV, Number 308
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About this Author

Breton Leone-Quick,finance,Mintz Levin,Securities Litigation Appellate Complex Commercial Litigation
Member

Bret serves as a trusted advisor to public companies and companies in the financial services industry in litigation matters and regulatory investigations. His understanding of the federal securities laws and regulations and experience with Delaware corporate law allow him to steer deftly through complex crises and disputes — sometimes enabling clients to avoid litigation or regulatory action. As a litigator, Bret has served as a lead trial counsel in both state and federal court actions, as well as numerous mediations and arbitrations. He has also successfully represented clients on...

617-348-4832
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