UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

Transcription

1 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 1 of 65 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA In re: Target Corporation Customer Data Security Breach Litigation This Document Relates to: MDL No (PAM/JJK) All Consumer Cases LEIF OLSON, Objector. [PROPOSED] FINDINGS OF FACT AND CONCLUSIONS OF LAW PERTAINING TO LIMITED REMAND ORDER OF EIGHTH CIRCUIT COURT OF APPEALS This matter came before the Court on the Eighth Circuit s limited remand opinion and Consumer Plaintiffs Motion for Certification of Settlement Class in Accordance with Limited Remand Order ( Plaintiffs Motion ), Dkt. No On February 1, 2017, the United States Court of Appeals for the Eighth Circuit issued an opinion directing this Court to conduct and articulate a rigorous analysis of Rule 23(a) s certification prerequisites as applied to this case, which must expressly evaluate the arguments raised in [Objector] Olson s objection. In re Target Corp. Customer Data Sec. Breach Litig., 847 F.3d 608, (8th Cir. 2017) ( In re Target ). Within 120 days, this Court shall certify to this Court its findings and conclusions supporting its reconsideration of class certification. Id. at 616 (emphasis added). 1

2 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 2 of 65 The Court conducted a hearing on May 10, 2017, for the purpose of addressing the issues raised by Leif A. Olson s Objection to Settlement and Motion for Attorneys Fees ( Olson Objection ), as directed by the Eighth Circuit. Plaintiffs Lead Counsel, Target s Counsel and Counsel for Objector Olson appeared. Having considered the Olson Objection, Plaintiffs Motion, all papers filed in connection with and in opposition to these filings and oral arguments of counsel, and based upon the record and all prior proceedings in this case, and good cause appearing based on the record, ACCORDINGLY IT IS HEREBY ORDERED: FINDINGS OF FACT I. Background 1. Between November 15, 2013 and December 17, 2013, hackers stole the personal and financial information (the data breach ) of up to 110 million customers of Defendant Target Corporation ( Target ). Target publicly disclosed the data breach on December 19, 2013 and numerous lawsuits followed. 2. The Judicial Panel on Multidistrict Litigation transferred numerous pending federal class actions relating to the data breach to this Court on April 2, Dkt The Court divided the matters into three groups: consumer cases, financial institution cases, and shareholder derivative cases. Dkt. 64. On May 15, 2014, this Court appointed Vincent Esades of Heins Mills & Olson, PLC as lead counsel for the consumer cases and Michelle Drake of Nichols Kaster PLLP as liaison counsel for the consumer cases. Dkt. 64 at 2; Dkt The district court also appointed three other attorneys from three other firms as the steering committee for the consumer cases. Dkt. 74 at 2. 2

3 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 3 of The consumer plaintiffs ( Plaintiffs ) filed their initial Complaint on August 25, 2014 (Dkt. No. 182), and filed their First Amended Consolidated Class Action Complaint on December 1, 2014 (Dkt. No. 258), alleging claims against Target arising from the data breach. Plaintiffs brought claims asserting violations of myriad state consumer laws and state data breach statutes, as well as negligence, breach of implied and express contract, bailment and unjust enrichment. Plaintiffs sought actual and statutory damages. Id. at 9, Target moved to dismiss the Complaint on September 2, Dkt. No On December 18, 2014, following briefing and a hearing, the Court issued its Memorandum and Order (Dkt. No. 281), granting in part and denying in part Target s motion to dismiss. The Court analyzed consumer protection laws, data breach notice statutes, and case law concerning negligence of numerous states and dismissed the breach of contract claims, the bailment claims, and the negligence claims for some of the states. See Dkt. No. 281 at 45. The consumer- protection statute claims (Count I of the Complaint) were withdrawn or dismissed for claims under 10 of the states. Id. at 13, 45. The data breach statutory claims (Count II of the Complaint) were withdrawn or dismissed for claims under 12 of the states. Id. at The court found that plaintiffs could proceed with data breach claims from 25 states and the District of Columbia and consumer- protection statutes from 39 states and the District of Columbia. Id. at 10, 13, Some of the state claims that remained provide statutory damages including, for example: Cal. Civ. Code (a), et seq. (alleged by Complaint at 107), which provides statutory damages of $500 and up to $3,000, see Cal. Civ. Code (c); District of Columbia Consumer Protection Act, D.C. Code (a), (d), (e), (f) and (r), et seq. (alleged at 95), which provides [t]reble damages, or $1,500 per violation, whichever is greater, see D.C. Code 28-3

4 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 4 of (k)(2)(A); and Rhode Island Deceptive Trade Practices Act, R.I. Gen. Laws (6)(v), (vii), (xii), (xiii) and (xiv), et seq. (alleged at 100), which provides actual damages or statutory damages of $200, whichever is greater, see R.I. Gen. Laws (a). 7. None of the 113 Class Representatives are from Rhode Island or the District of Columbia. See Dkt. 281 at 5. Further, no Class Representatives reside in Delaware, Maine, or Wyoming. The Court declined to dismissed claims under these five jurisdictions laws noting that the Article III standing analysis is best left to after the class- certification stage. Id. at The Court further found that Plaintiffs plausibly pled that the class faces a threat of ongoing or future harm. Id. at 8. A. Settlement Agreement 9. On March 9, 2015, before any classes had been certified, Plaintiffs and Target entered into a Settlement Agreement, resolving all claims asserted in the Consumer Cases. The Settlement includes a single class: 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 December 19, Excluded from the class are the Court, the officers and directors of Target, and persons who timely and validly request exclusion from the Settlement Class. Settlement Agreement 3.1, Dkt. No (Ex. 1 to Decl. of Consumer Pls. Lead Counsel Vincent J. Esades, Dkt. No. 358). 10. The Settlement Agreement provides that Target will create a fund of $10 million ( Settlement Fund ) from which the 41.9 million class members that had credit card information stolen and the 60 million class members that had 4

5 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 5 of 65 personal information stolen could submit a claim. See Settlement Agreement 1.21, 7.1; Distribution Plan, Dkt (Ex. 1 to Settlement Agreement). Claimants may be reimbursed for their losses up to $10,000 each if they submit satisfactory documentation ( Documented Claims ), or claimants may instead receive an equal share of the residual amount remaining in the Settlement Fund after payment of the Documented Claims and service awards ( Undocumented Claims ). See Settlement Agreement The 113 Class Representatives also receive service awards regardless of whether they file a claim under the settlement. Three representatives receive $1000 each and the remaining 110 Class Representatives receive $500. These service award payments total $58,000 and are paid from the Settlement Fund. See Distribution Plan, Dkt at While the Settlement defines the class to include everyone who had their information compromised as a result of the breach, only those class members who incurred losses or unreimbursed expenses could submit a claim and receive compensation. Question 3 of the claim form requires class members to identify the type of loss suffered as a result of the Target data breach : Unauthorized, unreimbursed charges on your credit or debit card. Time spent addressing unauthorized charges on your credit or debit card. Cost to hire someone to help correct your credit report. Higher interest rate on an account or higher interest fees that you paid. Loss of access or restricted access to funds. Fees paid on your accounts (i.e., late fees, declined payment fees, overdrafts, returned checks, customer service, card cancellation or replacement). 5

6 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 6 of 65 Credit- related costs (i.e., buying credit reports, credit monitoring or identity theft protection, cost to place a freeze or alert on your credit report or a drop in your credit score). Costs to replace your driver s license, state identification card, social security number or phone number. Other costs or unreimbursed expenses as a result of the Target data breach. (Explain below). Settlement Agreement Ex. 1, Distribution Plan at The claim form instructed class members that if you were unable to check any of the boxes under question 3, you are not eligible to submit a Claim under the Settlement. Id. Class members unable to certify a past loss receive no payment from the Settlement Agreement. Class members who suffer a loss after the end of the claims period (July 31, 2015), cannot receive payment under the Settlement Agreement. The claims deadline was less than 19 months after the data breach was discovered and announced by Target. 14. Because the Settlement Agreement provided for only a single settlement class (and because the Court certified a single class), class members who could not submit a claim as of July 31, 2015 are part of a de facto uncertified subclass that is not entitled to any of the Settlement Fund. 15. The Distribution Plan also provides for a claim validation procedure and a procedure for resolving any disputes relating to Documented Claims. See Distribution Plan 2, 3. Whether a class member s Documented Claim included satisfactory documentation is based solely on the discretion of the settlement administrator. Id The Settlement Administrator would evaluate each claimant s claim and determine if there was reasonable documentation that the claimed losses were actually incurred and more likely than not arose from the Intrusion. Id The Settlement included a dispute resolution process which allows claimants to appeal the Settlement Administrator s decision to the 6

7 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 7 of 65 Settlement Administrator and then to the settling parties. Id. 3. Separately from the Settlement Fund, the Settlement Administrator would receive $6.57 million for notice and administration costs. See Dkt. 482 at The settlement requires Target to adhere to certain business practices for five years after the settlement becomes effective. Target must adhere to the following practices: (1) Target will designate a chief information security officer, a high level executive with responsibility to coordinate and take responsibility for Target s information security program entrusted with the protection of consumers personally identifiable information; (2) Target will maintain a written information security program pursuant to which Target will identify internal and external risks to the security of consumers personally identifiable information, periodically review the sufficiency of safeguards to control such risks, and develop metrics to measure its security program and ensured that those metrics are periodically reviewed and approved by senior Target leadership; (3) Target will maintain a process to monitor for information security events and respond to such events determined to present a threat, under which Target will design and implement reasonable safeguards to control information security risks, including through reasonable and appropriate software security testing; and (4) Target will provide security training to Target employees by educating and training relevant employees concerning the importance of the security of consumers personally identifying information. Settlement Agreement Some of these measures predate the Settlement Agreement. For example, Target had hired its chief information security officer in June 2014, nine months before the Settlement was reached, and six months before the Complaint was filed. See Target Names Brad Maiorino Senior Vice President, Chief 7

8 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 8 of 65 Information Security Officer, Holyoak Decl. Exhibit 1. The appointment of a chief information security officer clearly benefits Target. 18. That said, the settlement s equitable relief provisions provide no specific benefit to Class Members. To the extent Target s business practices improve the security of consumers, it is directed to all consumers whose card data and personal information is held by Target in the future. These consumers include class members and non- members alike. 19. Under the Settlement, class members would release Target of all potential claims including unknown and future claims. See Settlement Agreement The Settlement permits class counsel to request fees up to $6.75 million and Target would pay the fees awarded by the court separate and apart from the Settlement Fund. Id. at Under the Settlement, Target expressly waives its right to appeal any award not to exceed $6.75 million. Id. While the Settlement Agreement purports to reserve the right of Target to object to fees, the agreement to not contest fees on appeal serves the same purpose as a clear sailing agreement insofar that robs the Court from adversarial briefing on attorneys fees from the party most knowledgeable on the subject the defendant. 22. While the separate structure of the fee payment suggests that payment or attorneys fees and expenses does not reduce benefits to the class, the provision benefits only Target and Class Counsel. If the Court awards class counsel less than $6.75 million, the difference would return to Target instead of the class members. There is no apparent reason the class should not benefit from the excess allotted for fees. In re Bluetooth Headset Prod. Liab. Litig., 654 F.3d 935, 949 (9th Cir. 2011). 8

9 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 9 of 65 B. Preliminary Approval Order 23. In seeking preliminary approval, the only argument class counsel made in support of the adequacy of the Class representatives was that [n]o conflict exists between Consumer Plaintiffs and other members of the Class. All seek damages and appropriate injunctive relief. Consumer Plaintiffs and all Class members have similar interests in establishing Target s liability for the same conduct and recovering damages resulting from that conduct. Dkt. No. 357 at 18. The issue of adequacy was not raised during the preliminary approval hearing. See Transcript of Preliminary Approval Hearing (Mar. 19, 2015), Dkt. No Following the preliminary approval hearing, on March 19, 2015, the Court entered an Order Certifying a Settlement Class, Preliminarily Approving Class Action Settlement and Directing Notice to the Settlement Class ( Preliminary Approval Order ), Dkt. No In the 14- page Preliminary Approval Order, the Court certified the above Settlement Class under Rule 23, approved the plan of distribution, directed notice to the class, appointed Plaintiffs named in the Complaint as settlement class representatives, and appointed settlement class counsel. The preliminary approval order designated six firms as class counsel: Heins Mills & Olson, PLC, Nichols Kaster, PLLP, Morgan & Morgan Complex Litigation Group, PA, Milberg, LLP, Stueve Siegel Hanson LLP, and Girard Gibbs, LLP. Id. at 4. The Preliminary Approval Order was substantially identical to the proposed order provided by filed with the settlement agreement and served via to the Court. See Proposed Order, Dkt. No , Ex. 7; Certificate of Service of Proposed Order, Dkt. No The Only finding concerning adequacy in the Preliminary Approval Order stated: Consumer Plaintiffs identified in Exhibit 8 attached to the Settlement Agreement are designated as the Settlement Class Representatives. 9

10 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 10 of 65 The Court finds that the Settlement Class Representatives are similarly situated to absent Class Members and therefore typical of the Class and that they will be adequate Settlement Class Representatives. Dkt. No. 364 at The Eighth Circuit found that the Court failed to analyze the requirements of Rule 23(a) in its Preliminary Approval Order because it relied on recitation of Rule 23 and a conclusion that certification is proper. In re Target Corp., 847 F.3d at 612. As such, and as directed by the Eighth Circuit, the Court conducts a new rigorous analysis in Section II below. C. Objections 27. Leif A. Olson filed detailed objections to the settlement and to Consumer Plaintiffs request for attorneys fees. Olson s Objection to Settlement and to Motion for Attorneys Fees ( Olson Obj. ), Dkt. No Although Olson is part of the class, Olson did not suffer any of the losses listed on the claim form and therefore, Olson did not and could not submit a claim. Decl. of Leif A. Olson 6, Dkt. No ; Lake Decl. 6, Dkt. No In addition to the Objection, Olson filed a Motion to Exclude the Expert Opinion of Hon. Arthur J. Boylan on October 26, 2015 ( Motion to Exclude ). Dkt Olson argued that as mediator of the class action settlement, Judge Boylan could opine as to whether the settlement was negotiated at arm s length, but Judge Boylan s Declaration impermissibly opined on whether the settlement satisfied the requirements of Rule 23 and on the structure and effect of the Settlement contract. Dkt. 625 at Jim Sciaroni objected to the settlement and the award of attorneys fees. Objections to Proposed Class Action Settlement ( Sciaroni Obj. ), Dkt. No Sciaroni s objection does not indicate that he filed any claim for, or incurred any monetary or other losses in the Target data breach. Id. The settlement 10

11 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 11 of 65 administrator confirmed that Sciaroni never filed a claim under the settlement. Lake Decl. 6, Dkt. No D. Final Approval Hearing and Order 30. At the final approval hearing held on November 17, 2015, Class Counsel advised that 61 million notices were sent to class members, or approximately 64% of the class. See Transcript of Final Approval Hearing (Nov. 17, 2015), Dkt. No. 649 at 5-6. The administrator received 225,780 total timely claims, of which 6,096 were Documented Claims. Therefore, slightly more than 0.2% of the class submitted valid, timely claims. Id. at 9. Approximately $442,722 would be paid to Documented Claims and for the remaining 220,000 undocumented claims, claimants would receive around $40 each. Id. 31. At the hearing, Class Counsel stated we re not going to hold up recovery for clients who have suffered actual damages for somebody that would include people who, but their own admission, didn t suffer. Id. at The suggestion that class members did not suffer actual injury contradicts the Complaint, which had alleged that all class members which included those who could not identify a specific loss on the claim form suffered an actual injury ( having their credit or debit card account and personal information compromised and stolen ) and damages ( diminution in the value of his or her personal and financial information ), as well as imminent, certainly impending injury arising from the substantially increased risk of future potential fraud, identity theft and misuse. Dkt. 258 at The Complaint sought recovery of actual and statutory damages for the entire class (see id. at 85, 121), and the Settlement Agreement releases the statutory damages and future damages for the entire class (Settlement Agreement 6), but at the fairness hearing, Class Counsel refused to hold up 11

12 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 12 of 65 recovery that depends on waiving the claims of 99.7% of class members who receive nothing from the settlement. 34. Following the final approval hearing, on November 17, 2015 the Court granted final approval of the settlement, denied Olson s Daubert motion, and approved the attorneys fee request in full in a 9- page order. Mem. & Order, Dkt. No. 645 ( Final Approval Order ). 35. The Final Approval Order did not provide any analysis of Rule 23(a)(4), which Objector Olson had raised. Olson argues that the settlement class cannot be certified because class members who have not experienced a concrete injury have an irreconcilable conflict will [sic] class members who did suffer a tangible injury. But the Court certified a settlement class in the preliminary approval order, and will not revisit that determination here. Final Approval Order at 6. The Eighth Circuit found this to be an abuse of discretion. In re Target Corp., 847 F.3d at Likewise, the Final Approval Order did not cite Rule 23(b), nor refer to predominance or superiority. Nor does it discuss the apparent kicker and clear sailing provisions of the Settlement Agreement, nor the burdens placed on objectors and those wishing to opt- out from the settlement. The Final Approval Order approves Plaintiffs fee request, but does not discuss the appropriateness of billing submitted from 45 law firms, including substantial billing after the appointment of lead counsel. All of these issues unaddressed by the Final Approval Order were raised by Objector Olson. 37. The Eighth Circuit found that while not exhaustive, Olson'ʹs objection raises important concerns for the district court to evaluate upon remand. In re Target Corp., 847 F.3d at 613. Therefore, this Court rigorously evaluates the concerns below. 12

13 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 13 of 65 II. Arguments Raised in Objector Olson s Objection 38. In its analysis on remand, the Court must expressly evaluate the arguments raised in Olson'ʹs objection. In re Target Corp., 847 F.3d at The Court requested, and the Plaintiffs and Olson provided, additional briefing on these arguments. These arguments include: A. Whether the requirements of Rule 23(a)(4) are satisfied in light of the intraclass conflict between class members who recover under the settlement and an unrepresented, uncertified subclass of millions frozen out of Settlement Agreement without compensation. Olson Obj., Dkt. 513 at 8-13; Olson April 17 Response, Dkt. ( Olson Response ). B. Whether the requirements of predominance and superiority are met under Rule 23(b)(3). Olson Obj. at 13-17; Olson Response. Olson argued that predominance could not be met because the proposed class involved numerous states laws, and that the claims process demonstrates individual questions overwhelm common questions of causation and damages. C. Whether the $6.75 million fee request was excessive given an exaggerated lodestar including billing for 45 law firms, including billing from numerous firms after appointment of lead and liaison counsel. Olson Obj. at D. Whether the clear sailing and kicker provisions of the Settlement Agreement demonstrate self- dealing and unfairly bar the class from enjoying benefit from any reduction in fees. Olson Obj. at 24-26; Olson Response. 13

14 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 14 of 65 E. Whether Rule 23(h) and 23(e)(2) have been satisfied, which require the disclosure of fee agreements among plaintiffs law firms. Olson Obj. at F. Whether the burdensome opt- out and objection process deterred class participation and thereby artificially depressed the number of objections and opt- outs received. Olson Obj. at As directed by the Eighth Circuit, each of these arguments is considered in turn below. A. Adequacy of Representation Under Rule 23(a)(4) 39. A class action cannot be certified unless the court determines that the class representatives will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a)(4). It is fundamental in order to meet the Rule 23(a)(4) adequate representation prerequisite that at the time the class is certified a class representative must be a part of the class and possess the same interest and suffer the same injury as the class members. Bishop v. Comm. on Prof l Ethics and Conduct of Iowa State Bar Ass n, 686 F.2d 1278, 1289 (8th Cir. 1982). (The adequacy requirement of Rule 23(a)(4) also necessitates retention of qualified counsel. It is undisputed that Class Counsel are competent and qualified.) 40. The Rule 23(a)(4) adequacy inquiry serves to uncover conflicts of interest between named parties and the class they seek to represent. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). Rule 23(a)(4) ensures that absent class members may be fairly be bound by the decisions of the class representatives including the release and settlement of their claims. Id. at 621. Class representatives must have the ability and the incentive to represent the claims of the class vigorously. In re Community Bank of N. Va., 622 F.3d 275, 291 (3d Cir. 2010) (cleaned up). This inquiry is vital, as class members with 14

15 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 15 of 65 divergent or conflicting interests from the named plaintiffs and class counsel cannot be adequately represented. Id. (cleaned up). 41. Class members are entitled to both unconflicted named representatives and unconflicted class attorneys. Only the creation of subclasses, and the advocacy of an attorney representing each subclass, can ensure that the interests of that particular subgroup are in fact adequately represented."ʺ In re Literary Works, 654 F.3d 242, 252 (2d Cir. 2011) (emphasis added); see also Piambino v. Bailey, 757 F.2d 1112, 1145 n.88 (11th Cir. 1985) (ordering designation of a separate subclass "ʺwith the right to have separate counsel unbeholden to Lead Counsel."ʺ); Hans v. Tharaldson, No. 3:05- cv- 115, 2010 U.S. Dist. LEXIS 45927, at *25 (D.N.D. May 7, 2010) ( The only way to ensure that each group of [plaintiffs] is adequately represented is to create two subclasses with separate counsel appointed to represent the interests of each class; otherwise, the factors of typicality and representativeness under Rule 23(a) will not be satisfied. ). Divergent interests require separate counsel when it impacts the essential allocation decisions of plaintiffs'ʹ compensation and defendants liability. In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 827 F.3d 223, (2d Cir. 2016) (cleaned up). 42. Here, based on its rigorous analysis and consideration of the Olson Objection, the Court finds that Plaintiffs fail to prove Rule 23(a)(4) adequacy because there are intraclass conflicts between class members who received compensation and class members who were part of a de facto unrepresented, uncertified subclass that receives nothing. 15

16 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 16 of Class Representative Interests 43. Class Representatives have different interests from most class members, the vast majority of which could not and did not claim any benefit under the settlement. 44. The Settlement here includes a single class: all persons whose personal or financial information was compromised during the Target data breach. See Settlement Agreement 3.1. But only class members with one of the specified injuries on the claim form prior to the claims deadline of July 15, 2015 could submit a claim for compensation. See Distribution Plan at 38. The vast majority of Class Representatives can submit claims under the Settlement Agreement, and Plaintiffs failed to provide testimony from a single Class Representative unable to claim such a loss. Effectively, the majority of class members comprise an uncertified subclass of consumers ineligible for compensation who do did not suffer a loss prior to July 31, 2015, but are required to waive their statutory- damages claims and future claims after July 31, 2015 (known or unknown). 45. There are fundamental conflicts between Class Representatives and this zero- recovery subclass. Class members with present claims will not (and did not) vigorously represent the zero- recovery subclass members who hold only future- damages claims. A de facto subclass therefore exists within the preliminarily certified class, which is not separately certified and is effectively unrepresented. 46. This subclass in fact, a majority of all class members receives no recovery or benefit under the settlement. The settlement administrator reported that only 225,793 timely claims were submitted. Suppl. Decl. of Amy Lake filed Mar. 27, 2017 ( Lake Suppl. Decl. ) 4 & attached Ex. 2. Given that the class consists of 41.9 million class members that had credit card information stolen, 16

17 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 17 of 65 and 60 million class members that had personal information stolen, the final approval of the settlement would waive the claims of up to million class member, over 99.7% of whom receive nothing under the Settlement Agreement. 47. The de facto uncertified subclass is not adequately represented insofar that the Class Representatives do not share common interests with the vast majority of class members. Virtually every Class Representative pleaded that they incurred the types of expenses and costs identified in Question 3 of the Claim Form and are eligible to submit claims for class relief. Plaintiffs Complaint identifies 113 Plaintiffs and describes the alleged harm suffered by each Plaintiff. Compl. 1, 8-113, Dkt. No Numerous Plaintiffs allege incurring monetary damages and specific losses including those in the categories identified in the Claim Form. 48. Plaintiffs provided no declaration of affidavit from any Class Representative demonstrating that even one class member is similarly positioned to the objectors and millions of other class members who receive no payment from the settlement. This failure of proof is significant given the extraordinarily lengthy period of time counsel has been aware of Objector Olson s objection concerning adequacy. Therefore, the Court rejects Plaintiffs contention that the Class Representatives possess common claims and adequately represent the de facto unrepresented subclass identified by Objector Olson. 49. Plaintiffs instead offer evidence that class members failed to file claims under the settlement agreement. Plaintiffs include a declaration from the claims administrator listing the class representatives who filed and who did not file a claim. Suppl. Decl. of Amy Lake filed Mar. 27, 2017 ( Lake Suppl. Decl. ) 4. The administrator does not state why 27 Class Representatives did not file a claim. Most of these class members alleged they had compensable claims under the settlement agreement. All but four of the Class Representatives who failed to 17

18 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 18 of 65 submit a claim alleged specific damages and losses for which a claim could have been submitted. Compare Ex. A to Lake Decl., Dkt with Complaint, Dkt (f), 8, 11, 12, 16, 17, 20, 22, 29, 31, 39, 46, 50, 52, 58, 59, 76, 87, 92, 95, 96, 108, 112. Several of them alleged significant damages. See, e.g., Complaint, Dkt (f) (alleging $378 in unauthorized charges, loss of access to funds, purchase of extensive credit monitoring, late fees, replacement card fees); 11 (alleging over $1200 in unauthorized charges and time completing police report and resetting automatic payments); 76 (alleging $1800 unauthorized charge and loss of access to credit). 50. Given that all of the 113 Class Representatives were in control of Plaintiffs, the utter lack of direct evidence provided by Plaintiffs, combined with the utter lack of explanation for the discrepancies between the 2015 complaint certified under Rule 11 and the assertions being made about these Class Representatives status in Plaintiffs 2017 filings by itself means that Plaintiffs have failed to meet their burden. 51. The fact that Class Representatives failed to file valid claims for concrete losses they pleaded suggests that they failed to protect their own rights, further suggesting that they were wholly inadequate to protect the rights of other class members. 52. The 27 non- claiming Class Representatives are further dissimilar from absent class members such as Objector Olson because they were each awarded $500 or $1,000, so lacked incentive to fight for the other class members. See In re Dry Max Pampers Litig., 724 F.3d 713, 722 (6th Cir. 2013) (incentive payments can give class representatives no reason to care whether the mechanisms available to unnamed class members can provide adequate relief ); cf. Redman v. RadioShack Corp., 768 F.3d 622, 629 (7th Cir. 2014) ( But often (though we were told at argument not in this case) the named plaintiff is the 18

19 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 19 of 65 nominee of class counsel, and in any event he is dependent on class counsel s good will to receive the modest compensation ($5,000 in this case) that named plaintiffs typically receive. ). 53. Class Representatives and their counsel therefore lacked incentives to provide recovery for class members who suffered no identifiable losses, including class members who have viable claims for statutory claims. Class Representatives and their counsel likewise lacked incentives to set aside recovery for class members with potential future losses who would only learn of their future losses after July 31, Even if a handful of the 113 Class Representatives could be said to be in the zero- recovery subclass, there is no evidence in the record that an individual Class Representative knew that they were being tasked with that separate representation, and no evidence in the record that an individual Class Representative had any authority or power (or knew that they had any authority or power) to hold up the settlement on behalf of their subgroup of class members over the approval of the other Class Representatives. 55. Even if a handful of the 113 Class Representatives could be said to be in the zero- recovery subclass, the intraclass conflict remains intractable because of the undisputed lack of separate representation by counsel during the settlement negotiations. 56. The intraclass conflict between Class Representatives and unnamed Class Members makes final certification and approval of the proposed class action settlement improper, as discussed further in the Conclusions of Law, infra. 19

20 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 20 of Alleged Non- Monetary Relief 57. Plaintiffs argue that all class members benefit from the payment of administration costs, attorneys fees and the equitable relief, but the Court finds there is no such benefit. 58. As for administration costs and attorneys fees, this cannot possibly constitute relief at all, let alone relief sufficient to establish adequacy under Rule 23(a)(4). Attorneys fees and administrative costs are features of virtually every settlement, including those properly rejected for inadequate representation. There is good reason for not counting notice and costs as a benefit; it is difficult to understand how receiving notice of a settlement that provides no value to a class member could benefit that class member. 59. As for injunctive relief, it provides no consideration for the release of the zero- recovery subclass s claims. The business practices, even if they were beneficial, provide no specific benefit to class members as opposed to all Target consumers. The injunctive relief is aimed at the world at large: class members, non- class members, and even opt- outs benefit without waiver of their claims. Because the injunctive relief is available to anyone whether or not they participate in the settlement the injunctive relief provides no marginal benefit to a class member waiving a claim, and cannot constitute consideration for a release of claims. Cf. Allen v. Similasan Corp., 318 F.R.D. 423, 428 (S.D. Cal. 2016) (noting that if class members knew and understood the terms of the Settlement Agreement, they would know that they would be better off opting out, since they would receive the same benefits of the injunctive relief in the Settlement Agreement but would not be giving up their right to sue ). 60. Purported relief under the Settlement Agreement has been provided to class members without waiver of their claims. Injunctive relief included a handful of business changes by Target: (1) designation of a chief information 20

21 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 21 of 65 security officer; (2) maintaining a written information security program; (3) maintaining a process to monitor for information security risks; and (4) providing security training to relevant Target employees. Settlement, Dkt at Plaintiffs provided no evidence demonstrating that these provisions which were enacted prior to settlement are attributable to the settlement, nor that they provide actual value to the 99.7% of class members who receive no compensation from the settlement. In fact, Target had already hired its chief information security officer in June 2014, nine months before the Settlement was reached, and six months before the Complaint. Target Names Brad Maiorino Senior Vice President, Chief Information Security Officer, Dkt. No. Holyoak Decl. Exhibit 1. The injunctive relief does not constitute relief under 23(e) to the extent Target took that step for its own business reasons (presumably to avoid further litigation risk), not because of any court- or- settlement- imposed obligation. Koby v. ARS Nat'ʹl Servs., 846 F.3d 1071, 1080 (9th Cir. 2017) (quoting Crawford v. Equifax Payment Services, Inc., 201 F.3d 877, 882 (7th Cir. 2000)). B. Predominance and Superiority Under Rule 23(b)(3) 62. A proposed class must satisfy at least one of the three requirements listed in Rule 23(b). Wal- Mart Stores, Inc. v. Dukes, 564 U.S. 338, 345 (2011). As subsections (b)(1) and (b)(2) do not apply in this case, the class must satisfy Rule 23(b)(3). 63. Under Fed. R. Civ. P. 23(b)(3), a class action may be maintained if the court finds that the questions of law or fact common to class members [1] predominate over any questions affecting only individual members, and that a class action is [2] superior to other available methods for fairly and efficiently 21

22 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 22 of 65 adjudicating the controversy. The proposed settlement satisfies neither the predominance nor superiority prong. 64. The Settlement Agreement and Distribution Plan purports to provides claiming class members damages as identified on the claim form. See Distribution Plan at 38. The Claim Form identifies eight types of injuries a class member may have suffered and a ninth catch all for any other types of expenses or costs. Id. To recover those losses, the claimant must submit documentation for each of those different loss type[s]. Id. at 39. One by one, the settlement administrator will evaluate each claimant s claim and determine if there is reasonable documentation that the claimed losses were actually incurred and more likely than not arose from the Intrusion. See Distribution Plan at 35. The claims process demonstrates that individual causation and damages calculations inevitably overwhelm questions common to the class. 65. The claims process further substitutes a real judicial forum (available if class members had brought their own claims) with an artificial judicial forum (created under the Distribution Plan). This artificial judicial forum created by the Settlement includes its own judge, rules, and procedures. Instead of a judge, the settlement provides a Settlement Administrator which decides issues in its sole discretion. Distribution Plan at 36. A vague evidentiary standard defines objective proof of losses as reasonable documentation. Id. at 35. The Settlement Administration somehow weighs the specified burden of proof that the claimed losses were actually incurred and more likely than not arose from the Intrusion. Id. 66. The Settlement Agreement also provides an appeals process. Instead, the Settlement Administrator will provide Plaintiffs Lead Counsel and Target s Counsel (together Counsel ) with a copy of the Claim Form and documentation submitted by the claimant, and the communications between the 22

23 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 23 of 65 Settlement Administrator and the claimant. Id. at 37. If Class Counsel and Target s counsel agree that the claimant is entitled to the amount of Substantiated Losses requested on the Claim Form, their determination will be final. Id. 67. A significant problem with the Settlement Agreement s artificial judicial forum is the lack of guidance for how the settlement administrator deals with class members who submit fraudulent claims. For each different loss type included in the Claim Form, there is great potential for submission of fraudulent claims, particularly when claimants can receive up to $10,000 in recovery. How will the administrator determine if the charges on a credit card statement were actually unauthorized? How will the administrator determine whether those unauthorized charges were actually later reimbursed? (Federal law limits a credit- card holder s liability for unauthorized uses. See, e.g., 15 U.S.C ) The possibility that some class members will be paid for losses that they never incurred while other class members will receive no compensation highlights why this class action is an inferior method of adjudication in fairness or efficiency. C. Attorneys Fees Request 68. The Settlement Agreement provides that defendant will not appeal attorneys fees of $6.75 million, which represents 40.3% of settlement benefits, excluding notice and administration costs. 69. Class Counsel submitted a $6.75 million attorneys fee request with a combined lodestar from 45 law firms for fees and expenses of $5.12 million for time spent after appointment of lead and liaison counsel on May 15, See Fee Motion, Dkt. 482 at 43; Exhibit 3 to Declaration of Consumer Plaintiffs Lead Counsel Vincent J. Esades ( Esades Decl. ), Dkt at

24 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 24 of The $5.12 million post- appointment time appears excessive because it represents time from 45 firms. This Court appointed 6 firms to act as lead or liaison counsel and who were designated settlement class counsel under the Preliminary Approval Order. See Dkt. 364 at 4. The combined lodestar post- appointment for those 6 firms totals $3,739,200. See Exhibit 3 to Esades Decl., Dkt at 2. The post- appointment time, however, represents $1.376 million in additional time from these other 39 firms. The additional 39 law firms ought not to have performed much additional work. 71. Class Counsel also claim $3.78 million in lodestar prior to their appointment. See Fee Motion, Dkt. 482 at 43. It is unclear whether that the pre- appointment time includes time for those same 45 firms as class counsel has provided no breakdown by firm or by category of the $3.78 million. Although counsel has submitted monthly time and expenses to the Court after appointment of lead and liaison counsel, they have not submitted records of their $3.78 million pre- appointment time and have had no accountability to the Court for that time. D. Clear Sailing and Kicker Provisions 72. Nothing in the record suggests any collusion between the parties, but the Settlement Agreement itself contains red flags, which courts have warned are subtle signs of self- dealing. See In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935, 947 (9th Cir. 2011) (cautioning courts to be alert to more subtle signs that class counsel has pursued their own self- interests, including when counsel receive a disproportionate fee or the class receives no monetary distribution, the presence of a clear sailing provision or a kicker provision). The Court finds that the Settlement Agreement contains clear sailing and kicker 24

25 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 25 of 65 provisions, and that Plaintiffs do not explain these provisions in part because they refuse to acknowledge their existence. 73. Under the Settlement, Target expressly waives its right to appeal any fee award that does not exceed $6.75 million. Id. Plaintiffs assert that the Settlement Agreement does not contain a clear sailing provision, because it does not expressly say that Target agrees to pay any amount of attorneys fees, and purports that Target may oppose Class Counsel s fee request, although Target instead agreed it would not appeal an award less than $6.75 million. This distinction cannot withstand scrutiny because the agreement denied the Court an adversarial briefing on attorneys fees from the party most knowledgeable on the subject the defendant. 74. By forbidding Target from challenging the fee award on appeal, Class Counsel deterred Target from filing an objection to its fee request. Such a clause by its nature deprives the court of the advantages of the adversary process. Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 525 (1st Cir. 1991). So it did here. Target did not contest the fee request due to its de facto clear sailing agreement. Thus, the provision carries the potential of enabling a defendant to pay class counsel excessive fees and costs in exchange for counsel accepting an unfair settlement on behalf of the class. In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 947 (9th Cir. 2011) (cleaned up). 75. The Settlement Agreement also contain a kicker provision, which is an agreement providing that any fees not awarded by the court will revert to the defendant. This kicker arrangement reverting unpaid attorneys fees to the defendant rather than to the class amplifies the danger that is already suggested by a clear sailing provision. Id. at 949. While a court may return excessive fees to the class members in a typical common- fund settlement, when fees are segregated in a constructive common fund like this case, the Court 25

26 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 26 of 65 cannot return the excessive fees to the class members. See Pearson v. NBTY, Inc., 772 F.3d 778, 786 (7th Cir. 2014). 76. Plaintiffs offer no reasoned argument for their position the Settlement Agreement does not contain a kicker. Instead, Plaintiffs cite to a declaration from the mediator testifying that the agreement includes no kicker. However, the best evidence is the Settlement Agreement itself, which shows funds not awarded remain with Target and cannot benefit the class. This constitutes a kicker. Cf. Bluetooth, 654 F.3d at 947 ( all fees not awarded would revert to defendants rather than be added to the cy pres fund or otherwise benefit the class ). The mediator s apparent misunderstanding of the term kicker cannot alter this reality. Class counsel refused to acknowledge the nature of their kicker provision, so provided no explanation for how it might have benefited the class. The Court finds none. 77. The structure appears to be a gimmick for defeating objectors. Pearson v. NBTY, Inc., 772 F.3d 778, 786 (7th Cir. 2014) (finding not realistic class counsel s claim to negotiate for the benefits to the members of the class first, selflessly leaving for later any consideration of or negotiation for their award of attorneys fees ). The Court finds that Class Counsel negotiated attorneys fees separately from the Settlement Fund, but this formality does not explain the parties agreement to pay attorneys fees with any reduction benefiting Target. 78. The class would have been better served with a larger common fund where attorneys fees are drawn from the common fund; in this way, any reduction of attorneys fees would benefit the class. Instead, the portion of any attorneys fee request not awarded by the Court remains with Target and cannot benefit the class. 26

27 CASE 0:14-md PAM Document 785 Filed 04/17/17 Page 27 of 65 E. Non- Disclosure of Fee Agreements Under Rule 23(e)(3) 79. Plaintiffs fee request does not specify what billing is sought by which law firm, but instead providing for lump sum for the six firms appointed as Class Counsel to distribute amongst themselves (and the other 39 firms that submitted lodestar time). See Exhibit 3 to Esades Decl., Dkt at At this time, Class Counsel has not disclosed fee agreements between any of the 45 law firms that provided billing for this matter. F. Barriers to Object and Opt Out 81. Objections and opt- outs to the settlement were required to mail three signed copies of their objections and opt- outs. See Exhibit 3 to Settlement, Dkt at The Preliminary Approval Order requires that any objector may be required to sit for a deposition and if he fails to comply, shall waive and forfeit any and all rights he or she may have to object, and shall be bound by all the terms of the Settlement Agreement. See Preliminary Approval Order, Dkt. 364 at 11. Only three of the 113 class representatives have been deposed. See Class Counsel Fee Request, Dkt. 482 at The Settlement places additional restrictions on objectors who retain counsel. The objector must include his attorney s experience with class actions, including the capacity in which the attorney participated in each class action and the outcome of each case, and for each case in which the attorney has previously represented an objector in a class action, the disposition or effect that any objection had on each class action case, and whether the attorney was paid for each case that was voluntary dismissed, at any time, including on appeal. See Preliminary Approval Order, Dkt. 364 at