[BreachExchange] Home Depot deal may set standard for cyber breach settlements

[Audrey McNeil]

http://www.businessinsurance.com/article/20160315/NEWS06/160319915/atlanta-based-home-depot-inc-19-5-million-settlement-deal-may-set

The $19.5 million settlement Home Depot Inc. was able to reach in
connection with its massive 2014 data breach was relatively low, which can
be attributed to the difficulty plaintiffs in many related cases have had
in successfully claiming damages, say experts.

Atlanta-based Home Depot announced last week that it will set up a $13
million fund to reimburse shoppers for out-of-pocket losses and spend at
least $6.5 million to fund one-and-a-half years of cardholder identity
protection services, according to court papers filed March 7 with the U.S.
District Court in Atlanta,.

Under terms of the settlement, if the number of settlement class members
who enroll in monitoring service is more than 40 million persons, the cost
of these services will increase at a rate of $16,250 for every 100,000
eligible settlement class members over that total, according to the
settlement terms.

Class members who submit a valid claim form and “reasonable” documentation
of substantiated losses are eligible for reimbursement of up to a maximum
of $10,000. Class members have until July 18, 2016 to opt out of the
settlement. A final hearing on the settlement is scheduled for Aug. 12.

The settlement covers about 40 million people who had payment card data
stolen and 52 million to 53 million who had email addresses stolen, with
some overlap between the two groups.

Experts say the settlement was not larger because in many comparable cases,
defenders have successfully sought dismissal on the basis that plaintiffs
did not have standing to sue because they had not yet suffered injury.

One exception to this was the July 2015 ruling by the 7th U.S. Circuit
Court of Appeals in Chicago, which held that plaintiffs in a Neiman Marcus
breach case met the standard set in the U.S. Supreme Court's 2013 ruling in
Clapper v. Amnesty International USA in showing a “substantial risk of
harm” from the 2013 data breach. That case is now proceeding in U.S.
District Court in Chicago, with a status hearing set for May 12.

Roberta Anderson, a partner with K&L Gates L.L.P. in Pittsburgh, who is not
involved in the case, referred to the 2015 $10 million settlement by
Minneapolis-based Target Corp. over its 2013 data breach, which compromised
at least 40 million cards.

Ms. Anderson said she could not comment on the specifics of the Home Depot
settlement. But “the relatively low settlement amount that we see in Target
and Home Depot is reflective of the fact that the plaintiffs in these cases
face very significant uphill challenges in getting their claims to advance
through the judicial system because the vast majority of those plaintiffs
lack actual compensatory injuries,” so their claims “are subject to
significant challenges, including on standing grounds.”

Ms. Anderson said had the two cases not been settled there was a good
chance they would have been dismissed at the pleading stage, although it
would have been expensive for the companies to proceed with the litigation.

Linn Foster Freedman, a partner with Robinson & Cole L.L.P. in Providence,
Rhode Island, said, “Home Depot has alleged all along that none of these
customers were harmed by the intrusion,” but the company has “been sued in
multiple class actions that have been consolidated, and (Home Depot is)
settling it because it's extremely expensive to litigate class action
lawsuits.”

Ms. Freedman said, “What is the most interesting thing about this
settlement to me is that (it) includes a recovery of up to $10,000 per
customer, which includes up to five hours of documented time that consumers
have to deal with issues around identity theft, making sure that they're
protecting themselves, and to my knowledge that's the first time we've seen
that.”

“This case has been a model, really, from day one,” said Ms. Freedman, who
is not involved in the case. Home Depot “did a great job with crisis
management following the data breach, and I do believe every settlement we
see” in the future will flow from this one.
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