Feb 10 2017

Eighth Circuit Remand in Class Certification Case May Require District Court to Rule on Standing of Alleged Subclass

The Eighth Circuit recently reversed and remanded a United States District Court’s ruling that certified a class action suit against a retailer, as well as an approved a $10 million settlement, based on a 2014 data security breach that exposed customers’ personal information. The appeal was brought by two objectors to the certification of the class and the settlement, including class member Leif Olson, who opposed classification due to an alleged intraclass conflict, namely, that he was not adequately represented because he, along with other similarly situated class members, did not suffer any economic harm due to the breach and, therefore, would not be compensated, while those who did suffer a financial loss would benefit from the proposed class settlement. The other class member Jim Sciaroni objected to the approval of the settlement.  The decision can be found at Sciaroni, 2017 WL 429261.

While the appeal turned on whether the court had abused its discretion in certifying the class, which the Eighth Circuit found it had, the intraclass issue focused the spotlight on one of the more nettlesome and unresolved issues involving lawsuits emanating from a data breach: standing and whether customers whose data was exposed due to a breach but can demonstrate no economic harm in that their stolen personal identifying information had not been used to obtain fraudulent payments or make fraudulent charges under their name, can demonstrate they suffered both the type of particularized and concrete injury (and have Article III standing to sue) required under the United States Supreme Court’s recent decision in Spokeo v. Robins.  

In Sciaroni, the District Court for the District of Minnesota certified the class, which the Eighth Circuit noted had been defined as ““[a]ll 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.” Under the settlement agreement, class members who suffered documented losses were compensated from the settlement fund first, while those who suffered no losses receive no money from the settlement fund. As noted, Olson argued against class certification, since he did not suffer any financial loss or expense and, therefore, was not eligible for compensation from the fund, yet, as a class member, he was required to release the retailer from all liability, irrespective of whether he suffered any injury in the future due to the data breach. Since he is ineligible for monetary compensation, Olson maintained that he was part of an unrepresented “zero-recovery subclass” for which a separate subclass with independent counsel should be certified.

In reversing and remanding to the District Court the class certification issue, the Eighth Circuit observed that a district court should not certify a class until it is satisfied, after a rigorous analysis, that the prerequisites for class certification under Rule 23(a) of the Federal Rules of Civil Procedure are met. Finding that the District Court had failed to conduct such an analysis, particularly since the issue of adequacy of class representations was at issue and required close scrutiny, consideration by the District Court of the alleged intraclass representation and adequacy of representation was required. Finally, the Court stated “[t]o be clear, we take no position in the propriety of class certification. We only conclude at this point that the record is inadequate for our review because the district court has not conducted a meaningful analysis of class certification.”

While the appeal dealt with whether the District Court abused its discretion in certifying the class, on remand, the issue of whether the so-called zero-recovery subclass can demonstrate Article III standing of showing they suffered a concrete injury under Spokeo may be raised, possibly allowing the District Court to weigh in on whether individuals who cannot prove any economic injury due to a data breach have standing to sue. If not, the desired subclass may be rejected on grounds unrelated to the alleged intraclass conflict.

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