Protecting objectors: N.Y. judge balks at tough rules in data breach class deal

An exterior view of the federal courthouse at 500 Pearl Street in New York. REUTERS/Chip East

(Reuters) - U.S. District Judge Kevin Castel of Manhattan joined a very small club last week.

The judge granted preliminary approval to a pair of proposed class action settlements stemming from a 2018 breach of payment card information from Saks and Lord & Taylor customers. But Castel balked at a one particular piece of the proposed deals, in which the stores’ parent, Hudson Bay Co ULC, agreed to pay as much as $2 million to consumers and up to $4 million to financial institutions affected by the breach.

In a two-page order, Castel said that the proposed settlements made it too hard for objectors to challenge the class deals. On his own accord, the judge revised the terms of the proposals to knock down some of the deals’ barriers for objectors.

Only a handful of other federal judges have issued written orders rejecting obstacles for objectors in classwide settlement agreements. I found three such decisions issued in 2012: from U.S. District Judge Richard Jones of Seattle in McClintic v. Lithia Motors Inc; U.S. District Judge Jeffrey White of Oakland, California, in Smith v. Levine Leichtman Capital Partners Inc; and U.S. District Judge Kathryn Vratil of Kansas City, Kansas, in Freebird Inc v. Merit Energy Co. In 2019, U.S. District Judge William Alsup of San Francisco issued an opinion denying preliminary approval to a class of Samsung plasma television purchasers in part because the procedures for objectors were “so onerous (that they) tank the settlement.”

Castel’s order in the Hudson Bay cases pointed out that judges’ fiduciary duty to absent class members obliges them to “consider all meritorious arguments brought to (their) attention.” It’s not supposed to be unduly hard for settlement objectors to raise challenges, the judge said, yet the Hudson Bay proposed settlements would have required objectors to submit detailed information about their previous objections and their lawyers’ previous work on behalf of objectors. The agreements also would have required disclosures about objectors' fee agreements with counsel. That was too burdensome, according to Castel.

“The proposed requirements would have needlessly frustrated and discouraged objections to the settlement, with no countervailing benefits to the court or the class,” the judge wrote. Under the preliminary approval orders Castel granted, objectors must simply provide their name and contact information (and that of their lawyers) and a specific explanation of the reason for their objection.

I emailed Hudson Bay counsel from Morgan, Lewis & Bockius about Castel’s changes to the proposed deals but didn’t hear back. I also didn’t receive a response from Scott + Scott, which represents financial institutions suing Hudson Bay, or from Faruqi & Faruqi and Calcaterra Pollack, which are leading the consumers’ case.

Eric Alan Isaacson, who frequently represents objectors (and is himself an occasional objector) said orders like Castel’s are rare because potential objectors may not even realize their rights are at stake until after proposed settlements have received preliminary approval and notices have gone out to class members. By then, Isaacson said, it’s usually too late for objectors to contest provisions that make it more difficult for them to challenge settlement agreements.

Occasionally, judges will press defense lawyers and class counsel at preliminary approval hearings about burdensome requirements for objectors, Isaacson said. Sometimes judges will insist at hearings on loosening the requirements, he said, but it’s hard to track those instances because there’s no written order. More often, Isaacson said, “judges are not paying much attention to the issue.”

In 2019, objectors represented by the Hamilton Lincoln Law Institute protested tough requirements for challenges to the $380.5 million Equifax Inc data breach settlement, arguing (among many other things) that it was unfair to require objectors to disclose details of their fee agreements with counsel, among other obstacles. “Courts should avoid notice language that places ‘burdensome hurdles’” on objectors’ rights, the brief said, quoting the Federal Judicial Center’s class action checklist.

Hamilton Lincoln’s objection failed to derail the Equifax settlement – and its director Ted Frank told me by email that his group doesn’t often attempt at the preliminary approval stage of class action settlements to challenge onerous requirements for objectors. “We rarely have notice,” he said. “And even if we did, it’s easier to write the boilerplate 60-page declaration listing our hundred-plus objections than to file a motion to intervene and then challenge the requirements.”

What Frank and Isaacson imply is a vicious circle, in which potential objectors don’t even realize that settlement agreements impose high barriers to their participation until it’s too late for them to try to knock those barriers down. Realistically, in other words, it’s up to judges overseeing class actions, like Castel in the Hudson Bay case, to make sure objectors have an opportunity to play their prescribed part in the class settlement process.

Of course, lots of class action lawyers would tell you that objectors are just gumming up the works, holding class members hostage for their own financial or ideological purposes. Regardless, the federal rules allow for absent class members to raise concerns about proposed settlements, and, as Castel noted in his Hudson Bay order, judges have a duty to listen to reasonable challenges.

I say good for him for assuring that objecting class members in the case before him will have an opportunity to be heard.

Read more:

Hudson's Bay Co inks data breach deals with financial institutions, consumers

Class action watchdog Ted Frank files objection to Equifax deal

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.