The U.S. Court of Appeals for the Eighth Circuit has sent the Target data breach consumer class action settlement back to the trial court for a second look at class certification, holding that the district judge did not adequately analyze whether the class was properly certified. In In re Target Corporation Customer Data Security Breach Litigation, decided on February 1, the appeals court expressed concern that the settlement class may not have been adequately represented due to potential conflicts among class members. The court also held that the trial court wrongly imposed an appeal bond in an unreasonably high amount for objecting class members who wished to appeal. The court’s decision thus puts the $10 million class settlement on hold; the case will go back to the District of Minnesota for that court’s reconsideration of the class certification and intra-class conflict issue.

The appeals court reversed class certification for purposes of the settlement because it concluded that the trial court had not engaged in a “rigorous analysis” of the Rule 23 factors, in particular with respect to adequacy of representation. The appealing objector, Olson, contended that he and other members of the class who had suffered no damage as a result of the data breach, but might in the future, stood to receive nothing under the settlement but were nonetheless required to release future claims. Olson contended that this so-called “zero-recovery subclass” could not be adequately represented by class representatives who did stand to benefit under the settlement, and that this intra-class conflict required class certification to be vacated. The appeals court agreed, holding that the trial court on remand would be required to consider the “important concerns” raised by potential intra-class conflicts, including whether such conflicts could be cured by the creation of subclasses.

With respect to the appeal bond, the trial court had set an appeal bond of nearly $50,000, a sum intended to not only capture recoverable costs in the event the appellant lost on appeal (which were estimated to be little more than $2,000), but also to allegedly cover “the financial harm the class would suffer as a result of the delay” in administering the challenged settlement. The appeals court reversed, holding that a proper appeal bond could only capture such costs as a prevailing litigant could recover under a specific rule or statute applicable to the case. The court noted that requiring any more would threaten to create an “impermissible barrier to appeal.”

The decision is noteworthy for several reasons. The first takeaway is that, in advocating for approval of a class settlement, counsel must view every objection to the settlement as significant, must proffer argument and if necessary evidence to oppose it, and must urge the court to review and analyze it thoroughly in any approval order. It is insufficient simply to rely on a final approval order that may have been drafted for the court before any objections were ever asserted; objections must be addressed specifically and comprehensively. Summary conclusions concerning the requirements of Rule 23, as this opinion shows, will not often fare well on appeal.

Second, settling companies and counsel should be wary of defining a settlement class so as to include class members who have no possibility of being compensated under the settlement. It is certainly arguable that individuals whose data was compromised but who have sustained no harm as a result have no cognizable claim (though the law in some circuits is developing to suggest they might). Still, including such persons in the class and requiring their release of future claims without any present compensation is a practice highly likely to draw objections, and may create real appellate difficulties. There is such a thing as a settlement that is “too good” from the defendant’s perspective.

As to the bond issue, appeal bonds in substantial amounts are often proposed by settling litigants, not just to cover “delay-based administrative costs,” but frankly to discourage settlement objectors from appealing. Such bond requests can themselves be “objector bait” that create bad optics for the settlement itself, and allow objectors to put on the mantle of having been treated unfairly. The appeals court’s decision here sides with the weight of authority in the circuit courts that confine appeal bonds to only those sums that can be recovered under rule or statute by a successful litigant. There is no reason to buck that body of authority, particularly when the result might be to make an objector’s challenge even stronger.