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Yahoo! Inc. has won preliminary court approval of an $80 million settlement of shareholder claims it allegedly failed to disclose four data breaches.
The prospective settlement could further encourage shareholders in other companies to pursue securities class actions to recover losses from data breaches. Ten similar suits against other companies, including Facebook Inc., have been filed following the Yahoo case, Bloomberg Law data show. Verizon Communications Inc. acquired Yahoo last year.
“There’s no doubt that other plaintiffs’ attorneys are watching these developments with interest,” Jonathan Meyer, a cybersecurity attorney and partner at Sheppard Mullin Richter & Hampton LLP in Washington, told Bloomberg Law May 10. “With cybersecurity attacks and breaches continuing to proliferate, it’s clear the securities class action has now become another legal weapon to wield against companies that are breached.”
Yahoo’s shareholders alleged that the company violated federal securities law because the breaches, and its failure to disclose them properly, caused Yahoo’s stock price to drop.
The shareholders filed a class action in January 2017 in the U.S. District Court for the Northern District of California. Judge Lucy H. Koh May 9 approved the settlement as fair and reasonable, pending a final settlement hearing set for Sept. 6.
The initial approval came weeks after Yahoo agreed to pay $35 million to settle Securities and Exchange Commission claims stemming from its two-year delay in revealing the massive 2014 data breach. It also came three days after Wendy’s Co. agreed to settle shareholder derivative claims over the fast-food chain’s 2015 data breach. Wendy’s had agreed to make corporate governance changes and pay about $1 million in legal fees.
Plaintiffs’ counsel may be more inclined to pursue federal securities class actions—as opposed to shareholder derivative lawsuits—against public companies partly due to potentially larger settlement amounts, Melissa Krasnow, a partner at VLP Law Group LLP in Minneapolis, told Bloomberg Law.
Shareholders in derivative suits sue the company’s directors on behalf of the company for breach of fiduciary duty. Companies including Home Depot Inc. and Target Corp. have fought such lawsuits after major data breaches. Home Depot settled its case for more than $1 million, while Target’s case was ultimately dismissed.
Attorneys for Yahoo and its shareholders didn’t immediately respond to Bloomberg Law requests for comment.
The case is In re Yahoo! Inc. Securities Litigation , N.D. Cal., No. 5:17-cv-00373, preliminary settlement approval granted 5/9/18
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