Target To Settle Data Breach Lawsuit For $10 Million

Individuals who are able to prove they suffered financial losses as a direct result of the data breach at Target in late 2013 will be eligible for up to $10,000 in damages under a proposed settlement of a class-action lawsuit against the retailer.

Target will set aside $10 million in an interest-bearing escrow account to fund claims made by individuals under the settlement, court documents filed Wednesday in the U.S. District Court for the District of Minnesota show. Funds that remain after all claims have been settled will not revert back to Target and will instead be distributed according to the court’s instructions. Under the proposed settlement Target has also agreed not to contest any award of attorney’s fees that do not exceed $6.75 million the court documents show.

Somewhat unusually for a proposed settlement of this sort, Target will also take several steps to minimize the risk of a similar breach in future. The measures include Target’s continued designation of a chief information security officer for overseeing enterprise wide security, Target’s maintenance of a written security policy and, periodic review of the controls it has in place for protecting customer data.

The data breach at Target, which lasted between Nov. 27 and Dec. 15, 2013, exposed account information on an estimated 40 million credit and debit cards. The breach also exposed names, email addresses, and phone numbers of an additional 70 million Target customers.

Target spokeswoman Molly Snyder expressed the company’s satisfaction at the proposed settlement. “We are pleased to see the process moving forward and look forward to its resolution,” she said in a statement via email.

If approved, the settlement would be a significant win for victims of retail data breaches. Courts around the country have tended to routinely dismiss consumer class action lawsuits involving retail data breaches on the grounds that consumers do not really suffer tangible financial harm from them. The plaintiffs in most such cases have tried claiming damages for financial losses, time spent changing cards and reviewing credit reports, and even for identity theft.

With Target’s breach, the court documents show that the named plaintiffs who filed the lawsuit against the company had a reasonable shot at proving they suffered some harm as a direct result of the breach.

Avivah Litan, an analyst at Gartner said the proposed settlement sends a clear warning to other retailers. Judges typically dismiss such data breach class action lawsuits because consumers cannot prove damages. Under U.S. regulations and the operating rules of the major credit card brands, consumers do not usually bear the costs of fraudulent transactions on their cards.

So it is surprising to see Target agreeing to such a large settlement, she says.

“What this tells me broadly is that courts are now leaning against retailers and buying arguments that consumers do suffer damages in the form of late fees, blocked bank or credit accounts, and time spent undoing the damage from these direct and ancillary effects,” Litan says.

While consumers typically get reimbursed for fraudulent charges on their cards, there are these other costs that need to be factored as well. “This case shows that the courts are more sympathetic to consumers and are opining against retailers when it comes to these ‘softer’ damages," she says.

Generally, class action lawsuits of the sort filed against Target profit only the attorneys said Richard Stiennon, says chief research analyst at IT-Harvest. "That said, the settlement helps to quantify the potential damages that result from doing a bad job on security and may encourage other companies to look at doing a better job,” he says. "$10 million dollars would go a long way to hiring a good team, deploying good tools and changing security processes."