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Posts Tagged ‘class action settlement’

HarrisMartin’s Data Breach Litigation Conference: The Coming of Age is scheduled for next Wednesday, March 25, 2015, at the Westin San Diego.  I’ll be speaking on a panel titled Creative Approaches to Settling Data Breach Cases with Ben Barnow of Barnow and Associates, P.C., Chicago.  So, the news this week was very timely that Target has reached a settlement in the consumer class actions arising out of its massive payment card breach.  Because a few clients and colleagues on both sides of the bar have asked for my opinion about the settlement, I thought I’d share a few thoughts here.

Settlements in data breach cases have been fairly rare up to this point, as many data breach cases have met their doom at the pleadings stage due to the inability of plaintiffs to show injury-in-fact sufficient to give them standing.  Payment Card cases have been an exception because there are real financial losses to consumers that can flow naturally from a hacking incident.  Importantly, these losses generally do not include the amount of any fraudulent card transactions because federal law limits consumer liability to $50 and the major card brands go further and impose $0 liability requirements on issuing banks.  However, other incidental losses, such as replacement card fees, interest, finance charges by other companies due to missed payments, to name a few, can result from a payment card breach.  For this reason, claims in several payment card class actions, including Target (Target Order on Motion to Dismiss) have survived motions to dismiss, leading many defendants to settle these cases.  Payment card class actions against Heartland Payment Systems, TJ Maxx, Michaels Stores, and others were all resolved by class-wide settlements.

The Target Settlement has been praised and derided by the mainstream and legal trade media with a host of characterizations ranging from “huge” to “affordable” to “tiny.”  In fact, Target’s settlement is not particularly groundbreaking beyond the media attention that it has garnered.  Instead, it shares many of the features of the payment card settlements that came before it, and it is not significantly different in terms of its cost or in terms of the benefits it would provide to consumers, if finally approved.

Here is a summary of some of the key features of the settlement:

Overall Costs to Target

Claims Fund.  Target is to pay $10M to create a fund to pay consumers who claim certain out-of-pocket losses and time spent in connection with those losses (discussed in more detail below).  The fund is non-reversionary, meaning unclaimed funds don’t go back to the defendant.  Instead, the agreement contemplates that the court will decide who unclaimed funds are to be distributed.  (For a discussion of how courts can deal with unclaimed funds, see this February 2010 CAB post.)

Attorneys’ Fees.  The plaintiffs will request court approval of up to $6.75M in fees.  Target may object to the initial request, but it may not appeal any decision by the trial court to award $6.75M or less.  Target must pay the fees awarded in addition to the $10M fund.

Settlement Expenses.  Target must pay for all settlement administrative expenses in addition to claims fund and fees.  This includes the expenses to provide both published and direct notice of the settlement to affected customers and the costs to administer claims and make payments to claimants if the settlement is finally approved.  For a class size as large as Target’s these costs can easily measure in the millions of dollars.

Total Payment by Target.  So, my guess it that the total payout by Target is likely to be closer to $19M, assuming the full amount of fees are approved.

Settlement Benefits to Consumers 

One of the attachments to the Settlement Agreement is a Distribution Plan that generally outlines the benefits available to claimants.  The Distribution Plan doesn’t itemize every conceivable loss that might qualify for compensation, but it attaches sample claim forms that give more insight into the specific benefits that are contemplated.  Most of the categories of reimbursable losses are similar to those provided for in other payment card settlements.  Here’s a summary, with some comments on each category:

  • Payment for unreimbursed, out-of-pocket expenses, with a $10,000 cap per claim – Note that due to the zero consumer liability rules on fraud losses, combined with the fact that payment card information cannot be used to commit other forms of identity theft, it is extremely unlikely that any individual person will have a claim for an amount near the cap.  If it were otherwise, then the fund would only be sufficient to pay 1000 claims.  Other payment card settlements have included individual caps for the most typical types of expenses, which rarely exceed $200 or so, with a separate fund available for extraordinary claims.  The Target settlement omits this smaller cap, perhaps because experience has shown that it is generally unnecessary to control unreasonable or fraudulent claims.
  • Payment for 2 hours of time at $10/hour associated with each type of actual loss claimed – Payments for time are an interesting feature of payment card settlements.  Because of the zero consumer liability for fraud loss imposed by the card brands, mere lost time and aggravation make up the vast majority of consumer impact in a payment card breach.  However, time and inconvenience are generally not considered injuries for which damages can be recovered, so by agreeing to pay for lost time, the defendant is agreeing to pay for something that the plaintiffs probably couldn’t recover if the case went to trial.  Nonetheless, there is nothing preventing defendants from offering these benefits in a class action settlement setting, and it has become common for defendants to offer payments for lost time.  Because claims for time are susceptible to fraud and abuse and are difficult to document, the amounts available tend to be limited to 1-3 hours.  Based on the sample claim form, the Target settlement seems to allow claims for time spent correcting fraudulent charges, but it doesn’t appear to allow claims for lost time resulting from card replacement (for example, having to change the number on automatic or recurring payments), which is something that affects far more consumers than fraud itself in the aftermath of a payment card breach.  Other payment card settlements have allowed claims for lost time for either fraud or for dealing with replacement card issues.
  • Two different types of claim forms – The settlement contemplates the ability to elect either a documented or undocumented claim.  Documented claims get priority in payment.  From a defendant’s perspective, undocumented claims are problematic, because they are susceptible to fraud and abuse.  From a consumer’s perspective, having to document claims is an added aggravation, on top of the aggravation  of having had to deal with the impact of the breach in the first place.  This structure offers a compromise that permits undocumented claims, but ensures that those claims that are documented will be paid first.

As a practical matter, given the size of the fund, it is likely that there will be plenty of money to pay all documented claims and all plausible undocumented claims.  In fact, in view of past settlements, it is extraordinarily unlikely that the amount of all legitimate claims will get even close to the $10 million available in the fund.  In the Heartland Payment Systems settlement, for example, arising out of an incident that impacted 130 million card holder accounts, the number of claims for reimbursement amounted to a grand total of $1925.  (See Judge Rosenthal’s Order in Heartland Payment Systems).  This miniscule claims amount was due undoubtedly to a lack of public familiarity with Heartland (a payment processor) as a brand and with the incident itself, two things that are certainly not true of Target, and claims rates in other settlements have certainly been higher despite having much smaller numbers of potential class members.  However, various media outlets have quoted a RAND Corporation researcher as estimating that less than $1 million of the $10 million fund will be claimed (see, for example, this article by Jason Abbruzzese at Mashable).

If he’s right, expect a fight ahead on what should happen with the $9M in unclaimed funds which, according to the agreement, “shall be distributed by the Settlement Administrator as directed by the Court.”  Cy pres anyone?

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In keeping with the time-honored tradition of end-of-the-year top 10 lists, I’ve assembled my annual list of the top 10 most significant class action developments below.  Whether these are actually the top 10 most significant decisions over the past year may be subject to reasonable debate, so please feel free to add your own favorites in the comments section.

1. Certiorari denied in “moldy washer” cases – In my view, the single biggest development impacting class action practice over the past year was the Court’s decision not to take on the question of “issue certification” presented in the Sears and Whirlpool “moldy washer” cases.  This non-decision opens the door for significant litigation over whether isolated issues should be certified for class treatment even where significant individual litigation would be necessary following resolution of the class wide issues.

2. Judge Posner’s class action settlement decisions – Judge Posner wins the award for the jurist having the single biggest impact on class action practice in 2014.  In addition to the Supreme Court declining to take on review of his decision in one of the “moldy washer” cases, Butler v. Sears, Roebuck & Co., Judge Posner authored two significant (and harshly worded) decisions discussing the standards for evaluating the fairness of class action settlements, including Eubank v. Pella Corp., Nos. 13-2091, -2133, 2136, -2162, 2202 (7th Cir., June 2, 2014), and Redman v. RadioShack Corp., case number 14‐1470, 14‐1471 and 14‐1658 (7th Cir., Sept. 19, 2014).  These decisions are emblematic of a more general trend in the courts of subjecting class action settlements, especially coupon settlements, to ever-greater scrutiny.

3. Basic framework remains largely unchanged after Halliburton II – One of only three Supreme Court decisions of significance on class action issues this past year, the Court largely maintained the status quo in declining to overrule the framework for evaluating “fraud on the market” theory of reliance in securities class actions.

4. Whirlpool trial ends with victory for the defendant – Not long after the Supreme Court declined review, the first of the “issue” class cases went to trial against Whirlpool.  The trial ended in a defense verdict, although as I wrote in October, I’m not sure that’s necessarily a good thing for defendants in the long-term.

5. Court clarifies removal pleading standards in Dart Cherokee Basin Operating Co. v. Owens – In one of the Roberts Court’s most helpful class-action-related decisions, at least from a practical standpoint, the majority removed barriers to corporate defendants’ ability to remove cases under the Class Action Fairness Act (CAFA), clarifying that jurisdictional facts need only be pled, not supported by evidence, in the notice of removal.

6. California Supreme Court issues significant decision on the use of statistical evidence to support class certification – An individual state court decision has to be pretty significant to make my annual top 10 list, but I think Duran v. U.S. Bank National Association fits the bill.  The decision is one of the most comprehensive to date in addressing the potential pitfalls of reliance on statistics as a proxy for common, class wide proof.

7. Supreme Court holds in AU Optronics that consumer actions brought by state attorneys general are not “mass actions” subject to the Class Action Fairness Act – It’s probably a misnomer to call AU Optronics a “class action” case, since the issue presented was whether actions brought by state AGs on behalf of consumers were “mass actions.”  But because the case involved interpretation of CAFA, it makes this year’s list.

8. International class and collective action litigation continues to expand – Class, collective, and multi-party actions continue to expand outside of the United States and Canada.  Examples included France joining the list of Civil Law jurisdictions in Europe to enact a “class action” law, and a group action in Austria, joined by more than 25,000 litigants, challenging Facebook privacy policies.

9. Data breach class actions proliferate – High profile data breaches and hacking incidents made news, and resulted in class actions, in 2014.  From a rash of payment card breaches impacting customers of large retailers like Target and Home Depot to the more recent Sony hacking incident, data breach class action litigation shows no signs of slowing down any time soon.

10. Supreme Court grants, then dismisses, certiorari in Public Employees’ Retirement System of Mississippi, v. IndyMac MBS, avoiding a high court ruling on the question of whether statute of repose can be tolled for absent class members under the American Pipe tolling doctrine.  In what has become a trend of the past year, this is yet another missed opportunity for the Supreme Court to address a class action issues of significance.

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In case you missed it, the BakerHostetler class action defense team published its second annual Year-End Review of Class Actions last month.  The 2013 issue was expertly edited by Dustin Dow of our Cleveland office, and features contributions from other members of the firm’s class action defense team across the country.  The 54-page report has a thorough recap of the key class action developments in the U.S. Supreme Court as well as other federal and state courts, summaries of key developments in various substantive areas of law in which class actions are prominent, and a preview of what to look for in 2014.  Click the link above to download a copy.

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If you’re prosecuting or defending a class action or are interested in class action developments (and I’m not sure why on Earth you would be reading this otherwise) you’ll want to know about a great new ABA publication on the Class Action Fairness Act of 2005 (CAFA).  The Class Action Fairness Act, Law and Strategy, is a book of collected works written by experts on both sides of the bar and deftly edited by former ABA CADS Committee Chair Gregory C. Cook.  Those familiar with CADS (the Class Actions and Derivative Suits Committee of the ABA Section of Litigation) will recognize the names of many of the knowledgeable contributors.

The book covers nearly every CAFA-related topic conceivable, from the history of CAFA to the provisions expanding federal diversity jurisdiction in class actions and the provisions regulating federal class action settlements.  It can be used as a reference guide for the basic requirements of CAFA, but it also provides practical strategy tips for both plaintiffs and defendants in dealing with common and not-so-common CAFA issues.  Here is a summary of the Table of Contents:

  • Chapter 1 – Introduction and Overview
  • Chapter 2 – CAFA in Congress: The Eight-Year Struggle
  • Chapter 3 – Hey CAFA, Is that a Class Action?
  • Chapter 4 – The Amount in Controversy under CAFA: Have You Got What It Takes for Federal Court?
  • Chapter 5 – CAFA’s Numerosity Requirement, or How to Count from 1 to 100
  • Chapter 6 – Basics of MInimal Diversity in CAFA
  • Chapter 7 – Welcome to the Jungle: CAFA Exceptions
  • Chapter 8 – How CAFA Expands Federal Jurisdiction to Include Certain Mass Actions
  • Chapter 9 – Advanced Procedural and Strategic Considerations on Removal under CAFA
  • Chapter 10 – CAFA-Related Appeals
  • Chapter 11 – CAFA Settlement Provisions

Be sure to click the link on the title of the book, above, for information about how to get your copy.  If you don’t have it, chances are that your opponent will!

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Editor’s Note: The following guest post was authored by Sara Collins, contributor to the consumer finance website, NerdWallet.  The views expressed in Sara’s article are her own.  Although those of us who tend to represent defendants in consumer class actions may not agree with all of Sara’s views on the benefits of class actions, we can certainly learn something from reading a consumer advocate’s views on the subject.  The article also provides an easy-to-follow primer on how class actions work.  Many thanks to Sara for her contribution. 

Class Actions – Do They Actually Help Consumers? 

By Sara Collins

Consumers in the United States are sometimes victims of bad business behavior. These behaviors cover a huge range of bad acts, particularly in the field of securities. Class actions allow consumers to band together and fight against bad business. As such, they have a number of benefits for consumers and are quite helpful in evening the corporation versus consumer playing field.

What are Consumer Class Actions?

A consumer class action is simply a lawsuit which takes place in a federal or state court. The case is brought by one or a small handful of individuals, acting as representatives for a larger group of consumers, known as the class. Typically the case is seeking damages on behalf of the named individuals in addition to the entire class.

Why is a Consumer Class Action Necessary?

Traditionally, class actions are used to combine small-dollar claims for a large number of people. One small claim is generally too small for a cost-effective suit. Consumer class actions offer a helpful alternative, justifying the litigation expenses and immensely improving the consumer’s odds of success, particularly when it comes to larger corporations.

How do Consumer Class Actions Work?

When a class action is first brought, the court initially decides whether it is a proper class action. This is a process known as class certification. The parties then work towards a trial, though settlement negotiations can take place at any point.  If the parties decide to settle the case, the court must approve the settlement and then order notice given to class action members.

Do Class Actions Work?

They definitely do. Billions of dollars are given back to the public every year which come from consumer class actions. In most cases, the money is given directly to the victims of the suit, rather than going into the hands of the government, lawyers or other non-consumers.

What Long-Term Effects do Consumer Class Actions Cause?

Class actions help to make bad business practices unprofitable. Class actions aggregate the power of isolated consumers, allowing class actions to compete against corporate behemoths. It levels the playing field, forcing businesses to operate in honest and trustworthy ways.  Markets in other countries where class actions are not allowed often suffer from corporate abuses like stock manipulation, insider trading and other problems.

Do Lawyers Benefit Excessively From Consumer Class Actions?

One argument used by businesses to protest the prevalence of consumer class actions is to claim that the lawyers benefit excessively from the cases. In fact, attorney fees in class action cases average just between 20 and 30 percent of the amount recovered. In stark comparison, personal injury lawyers typically reap 35 to 50 percent of their case winnings. Clearly businesses are using false arguments in an attempt to eliminate class actions and thus damages sought against them.

What is the Class Action Fairness Act of 2005?

The Class Action Fairness Act of 2005 (CAFA) was enacted by Congress in order to curb abuse of class action suits in state courts. Evidence showed that many class actions were being filed which benefited the counsel, rather than the consumers. Additionally, many cases were filed in courts which showed prejudice against business defendants, a problematic issue.

CAFA was enacted to extend federal jurisdiction to these state courts in order to diminish such abuses. CAFA has had a mild success and while most benefits are for businesses, some benefits are extended to consumers. Primarily, the legislation limits the monetary benefits for the attorneys. This ensures that money won in settlements goes to the members of the class, rather than the plaintiff counsel.

Consumer class actions are needed to ensure the financial safety of consumers, particularly in the realm of securities. Class actions allow consumers to band together, combining resources in order to sue a corporation as a singular entity. In turn, all consumers reap the benefits of the settlement, helping to prevent future bad behavior from the corporation in question. Class actions undoubtedly have a positive effect on the world of consumers and it is vital they stay legal for the foreseeable future.

Sara Collins is a writer for NerdWallet, a personal finance site dedicated to helping consumers learn about new ways to save money.

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Yesterday, the ALPS 411 Blog published my guest post titled I got this email about a class action.  What should I do?  Among other things, the post addresses how one goes about deciding whether an emailed class action notice is real or spam (or worse). 

For readers not familiar with the company, ALPS is an attorney liability insurer and financial services provider headquartered in my home state of Montana.  Be sure to check out the ALPS 411 Blog for excellent content relating to a host of topics of interest to attorneys, including ethics, malpractice, risk management, and general practice tips.

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Congratulations to my BakerHostetler partner, Bob Abrams, and the rest of his antitrust litigation team on a successful result in the Southeastern Milk Antitrust Litigation.  Below is a copy of a press release summarizing the case and settlement.  Also see these links to articles from the Wall Street Journal and Huffington Post.

Settlement brings total award to more than $300 million; agreement includes substantial changes to business conduct in the Southeast dairy industry

CLEVELAND – January 22, 2013 – BakerHostetler is proud to announce the third and final settlement agreement with the remaining defendants in the Southeast Milk Antitrust Litigation (MDL 1899—E.D. Tenn.). Dairy Farmers of America (DFA) and the remaining defendants/co-conspirators in the lawsuit that claims violation of federal antitrust laws have reached a settlement agreement with the certified class of Southeastern dairy farmers across 14 states totaling $158,600,000.

“The Southeast milk market has been reformed to the benefit of dairy farmers,” said Robert G. Abrams of BakerHostetler, lead attorney for the plaintiffs. “The monetary recovery itself is very substantial and the resulting conduct changes will significantly and positively impact competition in the southeast dairy industry.”

The settlement was reached in advance of the January 22, 2013 trial date and brings the total award for the certified class to more than $300 million. Previous settlements were reached in July 2011 with defendants Dean Foods for $140 million as well as Southern Marketing Agency and James Baird for $5 million plus changes in milk marketing conduct.

In addition to the monetary award, DFA agreed to change its business conduct in the Southeast, including taking steps to increase raw milk prices; removing cancellation penalties on certain full-supply agreements with bottling plants and not entering into new full supply agreements during the Settlement’s term; modifying membership agreements to improve farmer ability to change cooperatives; enhancing price-related information on milk checks; boosting transparency through auditing and disclosure commitments; and facilitating delegate votes on additional meaningful changes to conduct.

“We have always believed strongly in the southeast farmers’ case—a belief that has now been vindicated by three excellent settlements,” said Abrams.

The BakerHostetler team working on behalf of the certified class of Southeastern dairy farmers was led by Robert G. Abrams and includes Robert Brookhiser Jr., Gregory Commins, Joanne Lichtman, Terry Sullivan, William DeVinney, Dan Foix, Carey Busen, Bridget Merritt, Nicole Skolout.

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