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Two Philadelphia lawyers won a major victory for banks on Monday when the South Carolina Supreme Court ruled that victims of so-called identity theft have no valid claim of negligence against a credit card company that issues a card to an impostor. Attorney Burt Rublin of Ballard Spahr Andrews & Ingersoll said that the decision in Huggins v. Citibank is the first of its kind in the country and that the case was closely watched by the banking industry because the plaintiffs were seeking to create a “brand new tort.” The suit was filed in federal court in South Carolina but ended up on the state Supreme Court’s docket after Chief U.S. District Judge Joseph F. Anderson Jr. decided that it presented unanswered questions of state law. Anderson certified the following questions to the state court: “Does South Carolina law recognize the tort of Negligent Enablement of Impostor Fraud? If so, what are the elements of the tort and does plaintiff’s complaint state an actionable claim for the tort?” Now the five justices of the South Carolina Supreme Court have unanimously ruled that no such tort exists. “The relationship, if any, between credit card issuers and potential victims of identity theft is far too attenuated to rise to the level of a duty between them,” Justice E.C. Burnett III wrote for the court. In the suit, plaintiff P. Kenneth Huggins alleged that a “John Doe” identity thief had applied for six credit cards in Huggins’ name and that the banks issued the cards “with no investigation, no verification, no identification, no corroboration, and no effort whatever to determine whether Doe was who he claimed to be.” The unknown impostor used the cards for cash and goods but failed to make any payments, the suit alleged, causing Huggins to be pursued by collection agencies. The suit originally named six defendants, including three department stores, but the plaintiff later opted to pursue only the three banks — Citibank, Capital One Bank and Premier Bankcard. Rublin and Ballard associate John K. Semler Jr. moved for dismissal, arguing that Huggins hadn’t suffered any losses since the banks themselves covered the impostor’s fraudulent transactions and that none of the banks owed Huggins any duty since he was never a customer. But plaintiff’s lawyers argued that the banks should be liable under a negligence theory since they failed to scrutinize the applications carefully. Although Huggins ultimately suffered no financial consequences, they said, he should be compensated for the distress and embarrassment he suffered in the ordeal. In their brief to the South Carolina Supreme Court, the Ballard lawyers argued that Huggins’ suit was fatally flawed since it failed to allege any facts that would establish either a duty of care or proximate causation. Rublin and Semler argued that the plaintiff’s lawyers had cited no case law that would “support the brand-new tort he is asking this court to be the first in the country to adopt.” Plaintiff’s lawyers argued that identity theft is increasingly common and is, therefore, “foreseeable” by the banks. But the defense lawyers argued that “foreseeability alone does not suffice to create a duty of care.” Instead, they argued, a “plethora” of courts have held that a bank does not owe a duty of care to a non-customer with whom the bank has no direct relationship. “Federal and state courts around the country have consistently rejected negligence claims brought against banks by non-customers, because no duty of care is owed by the bank to a stranger,” they wrote. But the plaintiff’s lawyers argued that the South Carolina Supreme Court was writing on a “clean slate” since no court had yet addressed the specific issue of identity theft. Defense lawyers, however, argued that the appellate division of the New York Supreme Court refused to recognize the tort of “negligent enablement of impostor fraud” in its 1998 decision in Polzer v. TRW Inc. In Polzer, the defense said, the plaintiffs had a stronger connection to the defendants because they were existing customers whose identities had been stolen. Nonetheless, the New York court ruled that the banks “had no special relationship either with the impostor who stole the plaintiffs’ credit information and fraudulently obtained credit cards, or with plaintiffs, with whom they stood simply in a creditor/debtor relationship.” Rublin and Semler argued that “if no duty of care was owed in Polzer, where the plaintiffs were customers of the defendants, no duty arose here, since Mr. Huggins was not a Citibank or Capital One customer.” Justice Burnett agreed, saying that, like Polzer, South Carolina would “decline to recognize a legal duty of care between credit card issuers and those whose identities may be stolen.” Burnett said that the court was “greatly concerned about the rampant growth of identity theft and financial fraud” and that the court also recognized that “some identity theft could be prevented if credit card issuers carefully scrutinized credit card applications.” But the case still failed, Burnett found, because negligence law requires proof of a relationship between the plaintiff and the defendant to establish a duty of care. “Even though it is foreseeable that injury might arise by the negligent issuance of a credit card, foreseeability alone does not give rise to a duty,” Burnett wrote.

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