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Home Depot deal may set standard for cyber breach settlements

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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.