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The Green Sheet Online Edition

June 08, 2015 • Issue 15:06:01

Small change for small issuers in Target-MasterCard settlement

In a four page ruling issued May 7, 2015, United States District Court Judge Paul A. Magnuson blocked a preliminary injunction filed by a group of small banks and credit unions against a settlement proposed by MasterCard Worldwide and Target Corp.

The plaintiffs' claimed the settlement terms provide insufficient compensation for losses resulting from Target's 2013 security data breach, which compromised approximately 40 million credit and debit cards and 70 million consumer email and physical addresses.

Plaintiffs included Mutual Bank in Whitman, Mass.; Village Bank in St. Francis, Minn.; CSE Federal Credit Union in Lake Charles, La.; First Federal Savings of Lorain in Lorain, Ohio; and Umpqua Bank in Roseburg, Ore., a subsidiary of Umpqua Holdings Corp. The claimants stated that smaller financial institutions lack the reserves and infrastructure to effectively deal with the increasingly frequent and wide-scale attacks against retailers. Breach-related costs include credit and debit card reissuance, reimbursement of fraudulent charges and preventive maintenance such as free credit screening services to customers potentially affected by data breaches.

April 15 handshake, May 20 deadline

Target and MasterCard disclosed on April 15 that they had settled a dispute over the amount Target owed MasterCard's issuing banks for the December 2013 security breach. Target agreed to pay MasterCard $19 million if MasterCard secured a 90 percent approval from eligible card issuers by May 20. On April 16, MasterCard sent estimates to issuer banks of calculated damages from the Target breach, offering to pay a fixed percentage of MasterCard-related costs. Banks and credit unions had until May 20 to accept or reject the offer.

Judge Magnuson called the 30-day window "a short time-frame" for banks to decide and noted that lead counsel for plaintiffs "were neither involved nor informed of the settlement before the public announcement." Despite his expressed disapproval, Judge Magnuson could find no evidence of outright coercion or misconduct.

"Plaintiffs' lead counsel has proffered not a single affidavit from a bank that it fears losing MasterCard's business if it does not accept MasterCard's offer," he wrote, thus reluctantly granting approval for the settlement to go forward.

Ruling based on 1995 precedent

Judge Magnuson referenced a 1995 ruling by the Eighth Circuit Court in Great Rivers Co-op of Se. Iowa vs. Farmland Industries Inc., which cautioned against restraining speech in a class-action context, claiming that the courts cannot intervene in class-action settlements unless there is clear evidence of interference in the plaintiffs' rights. Guided by this standard, he was clearly empathetic toward the plaintiffs but found insufficient legal basis to grant the preliminary injunction.

"The Court agrees with the Plaintiff's counsel that the terms of the settlement do not appear altogether fair or reasonable," Magnuson wrote, further noting 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." He later commented that while the settlement may not pass the smell test, there was no serious misconduct by any of the parties.

Target leaves Canada, expects more fall-out

Target is bracing for more fall-out from the 2013 breach. In its annual report released March 13, the retailer stated that it expects further litigation from consumers as well as from state and federal regulatory bodies, including the Federal Trade Commission, the Securities and Exchange Commission and leading payment card brands.

Target recently closed 133 stores in Canada, laying off more than 17,000 workers in that market and auctioning off its Canadian real estate. Lowe's Companies Inc. and Wal-Mart Stores Inc. were quick to snap up available sites. end of article

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