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Judge OKs $5.2M settlement for banks vs Kmart over data breach; $1.7M to lawyers

By Dan Churney | May 31, 2017

Law money 12

A Chicago federal judge has signed off on a $5.2 million settlement in a class action lawsuit by financial companies against Kmart over a data breach, including $1.7 million for the plaintiffs’ attorneys.

U.S. District Judge John Lee, of the Northern District of Illinois, approved the deal May 19.

Greater Chautauqua Federal Credit Union, First Choice Federal Credit Union, Gulf Coast Bank & Trust Company, Governmental Employees Credit Union and Oteen V.A. Federal Credit Union filed for a class action suit in 2015 against Kmart and its parent company, Sears Holding Company. The suit stemmed from a data breach at Kmart the year before.

Plaintiffs said hackers compromised and stole confidential information of Kmart customers, primarily credit and debit card data, because Kmart allegedly failed to adequately protect the information. The hackers then used the cards for fraudulent purchases, causing plaintiffs and other financial institutions to spend money to replace the customers’ cards and cover fraudulent purchases.

About 8.1 million credit and debit cards were affected, according to plaintiffs.

Kmart and plaintiffs reached a $5.2 million settlement, with help from mediator Wayne R. Andersen, a retired federal judge. The agreement was presented to Judge Lee in the fall of 2016 for his nod. Lee then set deadlines for the claims process, including for anyone to object to the settlement. None did.

Lee also scheduled a hearing for May 19, at which he would decide whether to ratify the agreement. In preparation for that hearing, Katrina Carroll, one of the lawyers representing plaintiffs, praised the settlement.

“The reaction to the settlement has been incredibly favorable” and “represents a tremendous result for the Class,” said Carroll.

Lee ended up authorizing the arrangement, which sets up $3.5 million to be divided among plaintiffs and those who put in claims as part of the class action. About 330 financial institutions have submitted claims, while 15 institutions opted out of the settlement.

The five financial institutions that brought the suit, will also receive an extra $10,000 each for their efforts in launching the litigation.

Plaintiffs’ attorneys take home the remaining one third of the settlement, equaling $1.7 million. The lawyers racked up about 3,500 hours in the case, amounting to an average hourly billing rate of $597, according to court documents.

In addition, Kmart agreed to reimburse $95,575 to plaintiffs for costs and expenses plaintiffs absorbed in pursuing the suit. That amount is not being taken from the $5.2 settlement fund.

Besides forking over money, Kmart agreed to also change several of its data security practices.

A status hearing was set for June 16. The judge must approve the final allocation plan.

Greater Chautauqua is based in Falconer, N.Y., First Choice is in New Castle, Pennsylvania and Gulf Coast is in New Orleans. Governmental Employees is headquartered in La Crosse, Wis., and Oteen is in Asheville, N.C.

Plaintiffs are represented by the three Chicago firms of Lite DePalma Greenberg, Wexler Wallace and Miller Law; by the two Minneapolis firms Gustafson Gluek, and Lockridge Grindal Naeun; and the Washington, D.C. firm of Hausfeld LLP.

Other firms representing plaintiffs are: Scott and Scott Attorneys at Law, of New York City; Murray Law, of New Orleans; and Carlson Lynch Sweet & Kilpela, of Pittsburgh.

Sears Holding Company and Kmart are headquartered in suburban Hoffman Estates. They are defended by the two Chicago firms of King & Spalding and Polsinelli PC.

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Organizations in this Story

King & Spalding LLPPolsinelli PCSears Holdings CorporationMurray Law FirmU.S. District Court for the Northern District of Illinois