ST. LOUIS (Legal Newsline) – Last week, a federal appeals court reversed and sent back to a district court a $10 million settlement in a data breach class action brought against Target.

The U.S. Court of Appeals for the Eighth Circuit explained in its Feb. 1 opinion that while the U.S. Supreme Court has not said what, specifically, a “rigorous analysis” of class certification prerequisites entails, at a minimum the rule — Rule 23(a) — requires a district court to state its reasons “in terms specific enough for meaningful appellate review.”

Judge Bobby E. Shepherd, writing for the Eighth Circuit, said the U.S. District Court for the District of Minnesota’s certification of the settlement class did not meet this standard.

“In its preliminary order, the court replaces analysis of the certification prerequisites with a recitation of Rule 23 and a conclusion that certification is proper,” Shepherd wrote.

He continued, “These remarks are conclusions, not reasons, and on their own they do not constitute a ‘rigorous analysis’ of whether certification is proper in this case.”

Class member Leif Olson challenges the class certification for lack of adequate representation due to an alleged intraclass conflict.

Olson alleges that, unlike the class representatives, he incurred no expenses or costs making him eligible for compensation from the settlement fund. Despite receiving no such relief, he is bound under the deal to release Target from liability from any claims he may someday have.

He argues class members such as himself make up what he calls a “zero-recovery subclass.” Since no named plaintiff belongs to this purported subclass, Olson contends the court should certify a separate subclass with independent representation.

“Though not exhaustive, Olson’s objection raises important concerns for the district court to evaluate upon remand,” Shepherd wrote in the Eighth Circuit’s 10-page opinion.

Class member Jim Sciaroni did not object to the certification but appeals the district court’s approval of the settlement agreement.

Both Olson and Sciaroni also challenge the district court’s order requiring them to post a bond of $49,156 to cover the costs of the appeal.

The Eighth Circuit reversed that order, noting that the parties agreed that only $2,284 of the bond reflects the direct costs of the appeal. The remaining $46,872 — according to the district court — covers the “financial harm the class will suffer as a result of the delay caused by the appeal,” such as disruptions in the claims process, hindered distribution of settlement funds to class members, and the administrative costs of maintaining the settlement website and toll-free telephone number.

The Eighth Circuit remanded to the district court to reduce the bond to reflect only those costs that the appellees will recover “should they succeed in any issues remaining on appeal following the district court’s reconsideration of class certification.”

The settlement website noted the Eighth Circuit’s opinion, explaining that benefits cannot be distributed and claims paid under the settlement until class certification is again decided.

“Class counsel intends to move as quickly as possible to address this issue,” the post states. “However, the delay resulting from the two objectors’ appeals is out of our control and we do not know how long it will take to resolve the class certification issue.”

Vincent J. Esades of Minneapolis law firm Heins Mills & Olson PLC is lead counsel for the class.

According to Judge Paul Magnuson’s Nov. 17, 2015 order granting final approval, the settlement provides that Target will pay $10 million to settle the claims of class members and to pay service awards to class representatives. Any residual settlement funds will not revert to Target but will be distributed as directed by the court.

Payments to class members will vary depending on each individual’s ability to document their losses.

Individuals with documentary proof of losses will be reimbursed both for out-of-pocket loss and time loss (up to two hours at $10 per hour), up to a maximum of $10,000.

The plaintiffs have estimated that the average payout for such “high value” documented claims — where the claimed damages are more than $5,000 and there is documentation to support the claim — will be almost $2,200 per claimant, and the average payout for lower-value documented claims will be just under $300 per claimant.

Individuals who have no documented proof of loss will receive an equal share of the settlement fund after service awards and documented-loss payments are made.

The plaintiffs have estimated that the payment for undocumented-loss claimants will be $40 per claimant.

Magnuson said the settlement also requires Target to improve its data security practices in “significant ways.”

The court preliminarily approved the settlement in March 2015, certifying the class to include “all persons in the United States whose credit or debit card information and/or whose personal information was compromised as a result of the data breach that was first disclosed by Target on Dec. 19, 2013.”

The case arises out of one of the largest breaches of payment-card security in the United States’ retail history.

Between Nov. 27 and Dec. 15, 2013 — the peak of the year’s holiday shopping season — computer hackers stole credit- and debit-card information and other personal information for about 110 million Target customers.

Many of the plaintiffs, in their lawsuits, alleged the retail store failed to implement and maintain reasonable security procedures and practices appropriate to the nature and scope of the information compromised in the data breach.

“Over 99 percent of the Target data breach class gets nothing in this multi-million-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,” said Melissa Holyoak, an attorney with the Competitive Enterprise Institute’s Center for Class Action Fairness.

She added, “Striking down $46,872 of the unlawful appeal bond is 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.”

CEI attorneys represent Olson in the case.

From Legal Newsline: Reach Jessica Karmasek by email at [email protected].