$17M Target Breach Deal Imperiled by Conflict Allegations

By Perry Cooper

Target Corp.'s $17 million class settlement to resolve consumer claims over a 2013 data breach is in jeopardy as the Eighth Circuit says an alleged conflict of interest needs another look ( In re Target Corp. Customer Data Sec. Breach Litig. (Sciaroni v. Target Corp.) , 2017 BL 29235, 8th Cir., No. 15-3090, 2/1/17 ).

The deal, which provides for a $10 million fund for customers and $6.75 million for plaintiffs’ attorneys, won final approval in November 2016.

But the lower court never took seriously claims by a class member that the named representatives weren’t adequate representatives for the whole class because they received compensation while others didn’t, Judge Bobby E. Shepherd wrote Feb. 1 for the U.S. Court of Appeals for the Eighth Circuit.

The appeals court sent the case back to the U.S. District Court for the District of Minnesota to reconsider class certification. Should the district court decide the class shouldn’t have been certified, it could unwind the entire deal and put Target in a much stronger position.

Objectors to the fairness of the settlement applauded both the new look at class status and the Eighth Circuit’s additional finding that the objectors were required to pay an excessive bond in order to appeal.

“Over 99 percent of the Target data breach class gets nothing in this multimillion dollar settlement, so we are glad that the Eighth Circuit recognizes that the District Court cannot rubber-stamp settlements where class counsel cuts corners on procedural fairness so they can get paid quickly and generously,” objector counsel Melissa Holyoak of the Center for Class Action Fairness in Washington told Bloomberg BNA in an e-mailed statement.

Attorneys for the class and Target didn’t respond to e-mail requests for comment.

Inadequate Representation

The data breach compromised millions of Target customers’ payment cards.

Under the terms of the settlement, class members with documented losses are compensated from the fund first, and the remainder is distributed among class members with undocumented losses. Those who suffered no loss from the security breach receive nothing.

Class member Leif Olson objected to the settlement, arguing the named class members, who were compensated from the fund, shouldn’t have been allowed to represent those like him who suffered no losses.

Class members who received nothing from the fund were nevertheless bound under the settlement to release Target from liability for any further claims arising under the data breach, he argued. They should have been certified as a separate subclass with independent counsel, he said.

The appeals court held that the lower court failed to sufficiently scrutinize the prerequisites for class certification, including the requirement that the named plaintiffs adequately represent absent class members.

Excessive Bond

Olson and fellow objector Jim Sciaroni also challenged the district court’s order requiring them to post a $49,000 bond to cover the costs of the appeal.

The Eighth Circuit has never weighed in on this issue before.

Here, it joined other federal appeals courts that have addressed the question, holding that the bond must be linked to costs that a successful appellate litigant can recover under a specific rule or statute.

It ordered the district court to reduce the bond to reflect only those costs the class would recover if they win on any issues remaining on appeal after the district court reconsiders class certification.

Holyoak called the move “a major victory for objectors in the Eighth Circuit because it prohibits class counsel from using excessive appeal bonds to block an objector’s appeal.”

The decision doesn’t affect a separate $39 million class settlement between Target and banks over losses from the 2013 breach. That settlement won final approval in May 2016.

Judges Duane Benton and Leonard T. Strand, visiting from the U.S. District Court for the Northern District of Iowa, joined the opinion.

Vincent J. Esades of Heins Mills & Olson P.L.C. in Minneapolis argued for the class.

Melissa Ann Holyoak of the Competitive Enterprise Institute Center for Class Action Fairness argued for the objectors.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bna.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bna.com

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