District Court preliminarily approves $2.35 million settlement for card data breach

Privacy, Cyber Risk & Data Security Courts Data Breach Consumer Protection Class Action Settlement State Issues California

On November 8, the U.S. District Court for the Northern District of Texas issued an order accepting a magistrate judge’s report preliminarily approving a consolidated class action settlement related to a restaurant chain’s payment card data breach. Class members alleged that hackers gained unauthorized access to the restaurant chain’s computer servers and payment card environment between April 2019 and October 2020, resulting in hundreds of thousands of consumers’ financial information, including credit and debit card numbers, expiration dates, cardholder names, and internal card verification codes, being compromised. Hackers then allegedly advertised the stolen information for sale on the dark web. Several lawsuits were filed alleging violations of numerous state laws that were eventually consolidated with this action. The parties negotiated a settlement prior to class certification, which would require the restaurant chain to provide a $2.35 million all-cash non-reversionary qualified settlement fund and adopt several data-security measures. Class members also would be able to file claims for out-of-pocket losses, elect for a cash payments, and request credit monitoring services.

The magistrate judge’s report recommended that the proposed class settlement be preliminarily approved as it “will likely be found fair at the final approval stage” and the offered relief “is both procedurally and substantively adequate.” The magistrate judge disagreed with objections raised by certain plaintiffs who argued, among other things, “that the proposed settlement is ‘substantively inadequate’ because the amount of funds available per potential class member is ‘far too low.’” However, according to the magistrate judge’s report, when compared to other settlements approved in other data breach cases, it is “clear that the proposed settlement is at least in line with if not better than what any proposed plaintiff could have expected coming into the litigation.” The magistrate judge also refuted the objecting plaintiffs’ assertion that the proposed settlement treats class members differently by providing plaintiffs who can establish out-of-pocket losses with up to $5,000, California residents without losses with $100, and non-California residents without losses with $50. “The Settling Plaintiffs have adequately demonstrated why this extra recovery for California class members [is] equitable, if not equal. Namely, class members from California could bring California state law claims which provide for $100-$750 in statutory damages,” the report said, adding that “class members from California have a stronger basis for damages than do class members from outside the state—who may only be able to show nominal or incidental damages as a result of [the restaurant chain’s] breach of contract—and so their modestly increased recovery is justified.”