Lawyers for a portion of the financial institution plaintiffs in the Target class action litigation (including smaller financial institutions Umpqua Bank, Mutual Bank, Village Bank, CSE Federal Credit Union and First Federal Savings of Lorain) filed a motion for preliminary injunction to block Target’s proposed $19 million settlement with MasterCard based on claims that it would undercut their positions in the Target litigation.
Referring to the proposed settlement as a “sweetheart deal,” the lawyers for the smaller institutions argued “the agreement between Target and MasterCard is nothing more than an attempt by Target to avoid fully reimbursing financial institutions for losses they suffered due to one of the largest data breaches in U.S. history.” In the memorandum filed in support of their motion, the smaller institutions claim Target is attempting to use the MasterCard settlement to completely release all of the Financial Institution Plaintiffs’ claims through a measure that was originally intended to protect card issuers against data breaches.
Specifically, the smaller institutions claim MasterCard’s Account Data Compliance (ADC) program is being used to force them into a settlement that does not make them whole. The ADC program is the process used by MasterCard and issuing banks to determine liability and payment of damages related to a data breach. Specifically, through the program, “MasterCard allows financial institutions to recover certain, limited portions of their losses from data breaches if numerous criteria are met.” The smaller institutions contend that the ADC program is not intended to fully reimburse but rather involves MasterCard unilaterally determining whether any recovery is necessary after it investigates a breach. The card issuers can engage this process without releasing their claims against a merchant or other entity responsible for a breach.
In its memorandum in support of the motion, the smaller institutions claim Target and MasterCard “conspire[ ] to extinguish the financial institutions’ claims against Target for extremely low amounts…” The smaller institutions claim that, while Target and MasterCard may negotiate an agreement to release Target from its liability to MasterCard, the current settlement does more when it completely eliminates Target’s class action liability. The crux of the smaller institution’s argument is that the issuing banks “already have the right to participate in the [ADC] program without agreeing to a release” of Target.
Moreover, the smaller institutions claim that Target and MasterCard failed to disclose “that they were negotiating a settlement that would completely eliminate class action liability against Target…” The smaller institutions assert they would have made it a priority to participate in the settlement negotiations if they knew this was the case. These institutions also argue that the settlement requires the litigation proceed only in New York state court or the U.S. District Court for the Southern District of New York, stripping the court of its jurisdiction.
The smaller institutions also claim they would be forced to potentially waive their rights of recovery if the settlement is permitted by the court. The smaller institutions argue that when Target’s counsel informed them of the potential settlement with MasterCard, it was their understanding that Target may receive an offset or credit for the settlement amount. However, the settlement now includes a “requirement of a full release of all issuers’ claims against Target.”
On April 24, 2015, Target filed its opposition to the motion for preliminary injunction arguing that card issuers may choose to participate in the settlement and receive 71.4% of the “maximum amount recoverable on the claim MasterCard made against Target on the their behalf, and in return they will release Target from any and all claims they have against Target relative to the Target Intrusion, including those claims being asserted on their behalf in this litigation.” Target also states that card issuers that decide not to participate will receive nothing in the settlement, “but all of their existing recovery rights in regard to the Target Intrusion, including their rights under the ADC program and the claims being asserted on their behalf in this litigation, will be fully preserved notwithstanding the settlement.”
The Wall Street Journal reports that at a hearing held on April 27, 2015, U.S. District Judge Paul Magnuson didn’t rule on the smaller institution’s motion to allow issuers that participate in the settlement to also pursue other ways to get reimbursed.
The smaller institutions’ motion for preliminary injunction demonstrates how quickly friends can become foes in litigation related to data breaches. At the onset of the litigation, the smaller institutions and MasterCard were aligned against Target. By the time the smaller institutions filed their motion, it was necessary for them to request the court suspend the deadline to file an amended complaint “or add parties so that Lead Counsel may add MasterCard as a Defendant, if appropriate, in the current action pending the outcome of discovery efforts not directed at these issues.” That is, while the smaller institutions and MasterCard started out on the same team, the smaller institutions now claim “MasterCard has unabashedly carried Target’s water to suit itself at the bank’s expense.”
