United States: Are Administrative Fees And Costs A Benefit To The Class As A Whole? A Circuit Split Continues

Last Updated: July 10 2018
Article by Joseph H. Lang Jr.

In 2017, the Eighth Circuit reversed the certification of a settlement class in the Target 2013 security breach litigation. See In re Target Corp. Customer Data Sec. Breach Litig., 847 F.3d 608, 613 (8th Cir. 2017). The court remanded the case to the district court to conduct a proper class certification analysis. On remand, the district court again certified the settlement class. A second appeal was taken by two objectors and, this time, the Eighth Circuit affirmed the district court's certification of the settlement class and its approval of the settlement. See In re: Target Corp. Customer Data Security Breach Litigation, Nos. 15-3909, 15-3912, 16-1203, 16-1245, 16-1408, 2018 WL 2945973 (8th Cir. June 13, 2018)

One objector again raised issues as to the certification of the class. The court addressed the objector's contentions that the district court (i) misunderstood the terms of the settlement; and (ii) ignored intra-class conflicts between class members who suffered verifiable losses from the data breach and those who did not. In the end, the court concluded that the district court did not abuse its discretion in certifying the settlement class.

The court then turned to the other objector's issues as to the award of attorney's fees and the approval of the settlement. Here, we see a circuit split become more entrenched. Specifically, the objector argued that the district court erred in considering the costs of notice and administration expenses as a benefit to the class when determining the award of attorney's fees. The objector pointed to Seventh Circuit authority that would exclude such costs and expenses from the calculation. Notwithstanding, the Eighth Circuit followed its own recent precedent, which is at odds with the rule in the Seventh Circuit. The court explained its decision in this regard as follows:

Sciaroni first urges us to adopt the Seventh Circuit's approach to determine whether administrative fees and costs are a benefit to the class as a whole. See Redman v. RadioShack Corp., 768 F.3d 622, 630 (7th Cir. 2014) ("[T]he roughly $2.2 million in administrative costs should not have been included in calculating the division of the spoils between class counsel and class members. Those costs are part of the settlement but not part of the value received from the settlement by the members of the class."). During the pendency of this case, however, we issued two opinions that reached the opposite conclusion. See Huyer v. Buckley, 849 F.3d 395, 398 (8th Cir. 2017) ("[T]he district court did not abuse its discretion by basing its fee award on the total settlement fund, which included administrative costs."); In re Life Time Fitness, Inc., Tel. Consumer Prot. Act (TCPA) Litig., 847 F.3d 619, 623 (8th Cir. 2017) ("[T]he district court did not abuse its discretion by including approximately $750,000 in fund administration costs as part of the 'benefit' when calculating the percentage-of-the-benefit fee amount."). Accordingly, the same is true here: the district court acted within its discretion when it included notice and administrative expenses in its calculation of the total benefit to the class.

The Eighth Circuit's deference to district courts in awarding attorney's fees in these circumstances is in line with the approach taken by the Ninth Circuit. See Staton v. Boeing Co., 327 F.3d 938, 975 (9th Cir. 2003) ("where the defendant pays the justifiable cost of notice to the class[,] ... it is reasonable (although certainly not required) to include that cost in a putative common fund benefiting the plaintiffs for all purposes, including the calculation of attorneys' fees.").

It will be interesting to see if this circuit split deepens or is reconciled.

In re: Target Corp. Customer Data Security Breach Litigation, Nos. 15-3909, 15-3912, 16-1203, 16-1245, 16-1408, 2018 WL 2945973 (8th Cir. June 13, 2018).

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