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Judge in Target Data Breach Litigation Declines to Block MasterCard Settlement

Senior U.S. District Court Judge Paul Magnuson issued an order  on Thursday, May 7 denying a request by counsel for card issuer banks to enjoin the settlement of data breach related claims negotiated between Target and MasterCardAs we have previously reported, the proposed settlement would provide compensation to MasterCard-issuing banks for fraud losses and the cost of reissuing credit and debit cards.  Banks that agree to accept the settlement are required to release all data breach claims against Target arising from compromised MasterCard accounts.  Crediting substantive objections to the proposed settlement, Judge Magnuson wrote that “[t]he Court agrees with Plaintiffs’ counsel that the terms of the settlement do not appear altogether fair or reasonable.”  He also signaled disapproval of conducting settlement negotiations outside of the court proceedings without participation by or notice to class counsel, stating that “the way this issue has arisen is neither fair nor is it how the Court expects attorneys to conduct themselves in litigating matters before the Court.”  Nonetheless, Judge Magnuson concluded that he was powerless to enjoin the settlement, insofar as Fed. R. Civ. P. 23, which governs class actions, empowers parties to settle claims that are the subject of a class action privately, without court approval, at any time prior to certification of a plaintiff class.  “Before a class is certified,” he wrote, “a Court’s authority over settlements such as these is limited to curing communications that constitute ‘actual or threatened misconduct of a serious nature.’”  He concluded, however, that Target’s and MasterCard’s communications with card issuers concerning the settlement were not so misleading or deceptive that the Court would be empowered to enjoin the solicitation of card issuers to participate in the settlement.  Accordingly, the judge declined to enjoin the Target-MasterCard settlement.

It is unclear whether class counsel intend to seek interlocutory appellate review of Judge Magnuson’s order.  Such review is highly unusual and difficult to obtain.

As a result of this ruling, the settlement process under the Target-MasterCard settlement agreement can continue to go forward.  In order to participate in the settlement, issuer banks must affirmatively elect to join the settlement and provide releases to Target.  Target can walk away from the settlement if issuers of fewer than 90% of the affected payment card accounts opt into the settlement.  It is likely that class counsel will encourage issuer banks to decline the settlement and continue to participate in the class action.  The success or failure of such a campaign will determine whether MasterCard-related claims continue to be litigated in federal court before Judge Magnuson.  Also unclear at this point is whether a similar settlement is in the works between Target and Visa to resolve the claims of Visa-issuing banks and, if so, what the terms of that settlement will be.

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Kevin M. McGinty

Member / Co-chair, Class Action Practice

Kevin is a member of the firm's Health Care Enforcement Defense Group and has significant experience representing health care–related entities in a variety of litigation matters, including contract, regulatory, False Claims Act and class action lawsuits. Kevin's health care industry clients have included pharmacies, PBMs, hospitals, clinical laboratories, diagnostic imaging providers, pharmaceutical companies and managed care organizations.