Jim Sciaroni v. Target Corporation ( 2017 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 15-3909
___________________________
In re: Target Corporation Customer Data Security Breach Litigation
------------------------------
Jim Sciaroni
lllllllllllllllllllllObjector - Appellant
v.
Consumer Plaintiffs
lllllllllllllllllllll Plaintiff - Appellee
Target Corporation
lllllllllllllllllllll Defendant - Appellee
___________________________
No. 15-3912
___________________________
In re: Target Corporation Customer Data Security Breach Litigation
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Leif A. Olson
lllllllllllllllllllllObjector - Appellant
v.
Consumer Plaintiffs
lllllllllllllllllllll Plaintiff - Appellee
Target Corporation
lllllllllllllllllllll Defendant - Appellee
___________________________
No. 16-1203
___________________________
In re: Target Corporation Customer Data Security Breach Litigation
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Leif A. Olson
lllllllllllllllllllllObjector - Appellant
v.
Consumer Plaintiffs
lllllllllllllllllllll Plaintiff - Appellee
Target Corporation
lllllllllllllllllllll Defendant - Appellee
___________________________
No. 16-1245
___________________________
In re: Target Corporation Customer Data Security Breach Litigation
------------------------------
Jim Sciaroni
lllllllllllllllllllllObjector - Appellant
v.
Consumer Plaintiffs
lllllllllllllllllllll Plaintiff - Appellee
Target Corporation
lllllllllllllllllllll Defendant - Appellee
___________________________
No. 16-1408
___________________________
In re: Target Corporation Customer Data Security Breach Litigation
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Leif A. Olson
lllllllllllllllllllllObjector - Appellant
v.
Consumer Plaintiffs
lllllllllllllllllllll Plaintiff - Appellee
Target Corporation
lllllllllllllllllllll Defendant - Appellee
____________
Appeals from United States District Court
for the District of Minnesota - St. Paul
____________
Submitted: November 16, 2016
Filed: February 1, 2017
[Published]
____________
Before BENTON and SHEPHERD, Circuit Judges, and STRAND, District Judge.1
____________
SHEPHERD, Circuit Judge.
This is a consolidated appeal from various district court orders in a lengthy and
multifarious class action lawsuit against Target Corporation. Class member Leif
Olson challenges the class certification for lack of adequate representation due to an
alleged intraclass conflict. Class member Jim Sciaroni does not object to the
certification but appeals the district court’s approval of the settlement agreement.
Together, Olson and Sciaroni also challenge the district court’s order requiring them
to post a bond of $49,156 to cover the costs of this appeal. For the reasons discussed
below, we remand for further consideration of the class certification consistent with
this opinion. We also reverse the order of the district court setting the amount of the
appeal bond and remand with instructions to the district court to reduce the bond in
accordance with the rule set forth below. We retain jurisdiction over this case and,
to the extent necessary, will consider any remaining issues following the district
court’s disposition on remand.
I. Background
In 2013, Target announced a security breach by third-party intruders that
compromised the payment card data and personal information of up to 110 million
Target customers. Some months later, 112 consumer representatives initiated a class
1
The Honorable Leonard T. Strand, United States District Judge for the
Northern District of Iowa, sitting by designation.
action lawsuit against Target in the U.S. District Court for the District of Minnesota.
The parties eventually agreed to settle. Upon request from the consumer-plaintiffs,
the district court preliminarily certified a settlement class defined as “[a]ll persons in
the United States whose credit or debit card information and/or whose personal
information was compromised as a result of the [Target] data breach.” The court also
preliminarily approved the parties’ proposed settlement agreement, which calls for
Target to create a $10 million settlement fund for the class. Under the agreement,
class members with documented losses are compensated from the fund first, and the
remaining balance is distributed equally among class members with undocumented
losses. Class members who suffered no loss from the security breach receive nothing
from the settlement fund. The agreement also allows class counsel to request fees of
up to $6.75 million, which Target must pay in addition to the $10 million fund.
Finally, the settlement requires Target to commit to specific improvements in its data
security practices, such as appointing a chief information security officer, developing
safeguards to control identifiable security risks, and providing security training to
employees.
Between the district court’s preliminary and final orders certifying the class and
approving the settlement, class members Leif Olson and Jim Sciaroni each objected
to the settlement, alleging inadequate compensation and excessive attorneys’ fees.
Additionally, Olson argued that the class could not be certified because it failed to
meet the basic prerequisites of Federal Rule of Civil Procedure 23(a). Olson alleged
that, unlike the class representatives, he incurred no expenses or costs making him
eligible for compensation from the settlement fund. App. 309-10. Despite receiving
no pecuniary relief, as a class member Olson is bound under the settlement to release
Target from liability for any claims he may someday have should the breach injure
him in the future. According to Olson, class members who are, like himself,
ineligible for monetary compensation make up what he terms a “zero-recovery
subclass.” Olson argued that no named plaintiff belongs to this purported subclass,
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App. 309, and therefore the court should certify a separate subclass with independent
representation.
The district court overruled Olson’s objection and issued final certification and
approval of the settlement.2 When this appeal was filed, the district court imposed
a $49,156 appeal bond, which Olson’s counsel posted in full.
II. Discussion
A. Class Certification
We review a district court’s decision to certify a class for abuse of discretion.
Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1145 (8th Cir. 1999). Olson argues that,
in its preliminary certification order, the district court did not properly analyze Rule
23(a) before concluding that the consumer-plaintiffs adequately represent the class.
According to Olson, the court’s summary application of Rule 23(a) during
preliminary certification, as well as its refusal to revisit the issue upon final
certification, are independent grounds for remand. We agree.
A district court may not certify a class until it “is satisfied, after a rigorous
analysis,” that Rule 23(a)’s certification prerequisites are met. Wal-Mart Stores, Inc.
v. Dukes, 564 U.S. 338, 351 (2011) (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S.
147, 161 (1982)) (internal quotation marks omitted). Consistent with the Supreme
Court’s premise that “actual, not presumed, conformance with Rule 23(a) remains .
. . indispensable,” Falcon, 457 U.S. at 160, after initial certification, the duty remains
2
In doing so, the court also overruled Olson’s and Sciaroni’s objections to the
settlement agreement, describing the agreement as a “significant victory” for the
class. Sciaroni alone appeals this ruling. Because we agree with Olson that the
district court did not conduct a proper certification analysis, we do not reach
Sciaroni’s challenge to the settlement.
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with the district court to assure that the class continues to be certifiable throughout
the litigation, Petrovic, 200 F.3d at 1145. See also Barney v. Holzer Clinic, Ltd., 110
F.3d 1207, 1214 (6th Cir. 1997) (“The district court’s duty to assay whether the
named plaintiffs are adequately representing the broader class does not end with the
initial certification . . . .”). Where, as here, adequacy of class representation is at
issue, “close scrutiny” in the district court is even more important given the need to
protect the due process rights of absent class members. See Rattray v. Woodbury
Cnty., 614 F.3d 831, 835 (8th Cir. 2010).
Though the Supreme Court has not articulated what, specifically, a “rigorous
analysis” of class certification prerequisites entails, at a minimum the rule requires
a district court to state its reasons for certification in terms specific enough for
meaningful appellate review. “[S]omething more than mere repetition of [Rule
23(a)’s] language [is required]; there must be an adequate statement of the basic facts
to indicate that each requirement of the rule is fulfilled.” Pipefitters Local 636 Ins.
Fund v. Blue Cross Blue Shield of Mich., 654 F.3d 618, 629 (6th Cir. 2011) (internal
quotation marks omitted) (alteration omitted); accord Vizena v. Union Pac. R.R. Co.,
360 F.3d 496, 503 (5th Cir. 2004) (per curiam) (“[W]hen certifying a class a district
court must detail with sufficient specificity how the plaintiff has met the requirements
of Rule 23.”).
The district court’s certification of the settlement class does not meet this
standard. In its preliminary order, the court replaces analysis of the certification
prerequisites with a recitation of Rule 23 and a conclusion that certification is proper.
Regarding Rule 23(a)(4)’s representation adequacy requirement—the issue at the
heart of Olson’s appeal—the court states: “the Settlement Class Representatives and
Settlement Class Counsel will fairly and adequately protect the interests of the
Settlement Class as the Settlement Class Representatives have no interest antagonistic
to or in conflict with the Settlement Class and have retained experienced and
competent counsel to prosecute this matter on behalf of the Settlement Class.” These
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remarks are conclusions, not reasons, and on their own they do not constitute a
“rigorous analysis” of whether certification is proper in this case. See Stirman v.
Exxon Corp., 280 F.3d 554, 563 (5th Cir. 2002) (conclusory statement that “no
conflicts exist to preclude certification” does not sufficiently analyze representation
adequacy).
To be sure, there were no objections at the time the court entered its
preliminary order, and thus the class was initially certified without the benefit of
adversarial briefing on the issue. But Olson objected before final certification,
alleging an intraclass conflict that, if substantiated, would preclude certification of
a single class and warrant inquiry into certification of an independent subclass.3 See
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625-26 (1997); Fed. R. Civ. P.
23(c)(5). Despite its continuous duty to evaluate certification throughout the
litigation, Petrovic, 200 F.3d at 1145, the court dismissed Olson’s arguments, refusing
to reconsider whether certification is proper solely because it had already
preliminarily certified the class. The final order states:
Olson argues that the settlement class cannot be certified because class
members who have not experienced a concrete injury have an
irreconcilable conflict will [sic] class members who did suffer a tangible
injury. But the Court certified a settlement class in the preliminary
approval order, and will not revisit that determination here.
Addendum 22 (emphasis added).
3
In the district court, Olson also argued that the settlement did not satisfy Rule
23’s superiority or predominance requirements, the settlement terms were unfair on
account of self-dealing by class counsel, and the attorneys’ fee provision was
unreasonable. Though the court rejected all of these arguments, Olson appeals only
the district court’s ruling on certification.
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The lack of legal analysis in both the preliminary and final orders suggests that
class certification was the product of summary conclusion rather than rigor. We hold
that the district court abused its discretion by failing to rigorously analyze the
propriety of certification, especially once new arguments challenging the adequacy
of representation were raised after preliminary certification. See Falcon, 457 U.S. at
160. Accordingly, we remand for the court to conduct and articulate a rigorous
analysis of Rule 23(a)’s certification prerequisites as applied to this case. A sufficient
analysis will clearly inquire into whether the named representatives (1) “have
common interests with the members of the class[;]” and (2) “will vigorously
prosecute the interests of the class through qualified counsel.” E.g., Paxton v. Union
Nat’l Bank, 688 F.2d 552, 562-63 (8th Cir. 1982). In assessing these factors, the
court must diligently aim to “uncover conflicts of interest between named parties and
the class they seek to represent.” Amchem, 521 U.S. at 625; see also Dewey v.
Volkswagen Aktiengesellschaft, 681 F.3d 170, 183 (3d Cir. 2012) (“[T]he linchpin
of the adequacy requirement is the alignment of interests and incentives between the
representative plaintiffs and the rest of the class.”).
Though not exhaustive, Olson’s objection raises important concerns for the
district court to evaluate upon remand. First, whether an intraclass conflict exists
when class members who cannot claim money from a settlement fund are represented
by class members who can. Second, if there is a conflict, whether it prevents the class
representatives “from fairly and adequately protecting the interests of all of the class
members.” Petrovic, 200 F.3d at 1145. Third, if the class is conflicted, whether the
conflict is “fundamental” and requires certification of one or more subclasses with
independent representation. See In re Literary Works in Elec. Databases Copyright
Litig., 654 F.3d 242, 249-50 (2d Cir. 2011) (citing Ortiz v. Fibreboard Corp., 527
U.S. 815, 816 (1999)); see also Prof’l Firefighters Ass’n of Omaha, Local 385 v.
Zalewski, 678 F.3d 640, 648 (8th Cir. 2012) (“Given the nature of this case and the
potential conflict at issue, the district court did not abuse its discretion in certifying
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the class or by ensuring fair and adequate representation for the entire class by means
other than appointing separate counsel for each subclass.”).
To be clear, we take no position on the propriety of class certification. We only
conclude at this point that the record is inadequate for our review because the district
court has not conducted a meaningful analysis of class certification.
B. Appeal Bond
We next address the district court’s imposition of a $49,156 appeal bond under
Rule 7 of the Federal Rules of Appellate Procedure. The parties agree that only
$2,284 of the bond reflects the direct costs of this appeal. The remaining $46,872,
according to the district court, is included in the bond to cover “the financial harm the
class will suffer as a result of the delay caused by the appeal,” such as disruptions in
the claims process, hindered distribution of settlement funds to class members, and
the administrative costs of maintaining the settlement website and toll-free telephone
number. Appellants argue that these delay costs cannot be included in the bond
because no applicable statute or federal rule allows Appellees to recover those costs
if Appellants lose their appeal.4 Appellees disagree, citing a myriad of district court
4
Olson also argues that the district court erred in holding him jointly and
severally liable with Appellant Sciaroni for the appeal bond. He provides no
controlling authority for this assertion but cites cases from other circuits that are
inapplicable to the context at hand. See Hessel v. O’Hearn, 977 F.2d 299, 305 (7th
Cir. 1992) (search and seizure); Hous. Contractors Ass’n v. Metro. Transit Auth. of
Harris Cnty., 993 F. Supp. 545, 558 (S.D. Tex. 1997) (equal protection). We
therefore decline to overturn the district court’s imposition of joint and several
liability for the appeal bond.
Additionally, we recognize that, in light of our decision to remand this case to
the district court for reconsideration of class certification, Appellant Olson has
prevailed on his appeal. While there is some authority suggesting that this ordinarily
moots a challenge to a bond, see Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041,
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opinions and one Third Circuit opinion—all unpublished—allowing Rule 7 appeal
bonds to include delay-based administrative costs.
The issue is one of first impression in our Court: whether costs associated with
delays in administering a class action settlement for the length of a class member’s
appeal may be included in an appeal bond under Federal Rule of Appellate Procedure
7. While we ordinarily review the imposition of a Rule 7 bond for abuse of
discretion, the determination of costs allowable in the bond is a legal question
reviewed de novo. Adsani v. Miller, 139 F.3d 67, 71 (2d Cir. 1998); see also Reeder-
Simco GMC, Inc. v. Volvo GM Heavy Truck Corp., 497 F.3d 805, 808 (8th Cir.
2007) (reviewing de novo the interpretation of federal appellate rules).
Rule 7 allows a district court to “require an appellant to file a bond or provide
other security in any form and amount necessary to ensure payment of costs on
appeal.” Fed. R. App. P. 7. Appeal bonds are a type of guarantee for an appellee that
an unsuccessful appellant can pay the costs the appellee incurs as a result of the
appeal. Tennille v. W. Union Co., 774 F.3d 1249, 1254 (10th Cir. 2014). Appellate
courts generally limit “costs on appeal” to “costs that a successful appellate litigant
can recover pursuant to a specific rule or statute.” Id.; see also Azizian v. Federated
Dep’t Stores, Inc., 499 F.3d 950, 953 (9th Cir. 2007) (allowing attorneys’ fees in a
Rule 7 bond only when they are included as recoverable costs under an applicable
fee-shifting statute); Pedraza v. United Guar. Corp., 313 F.3d 1323, 1333 (11th Cir.
2002) (same); In re Am. President Lines, Inc., 779 F.2d 714, 716 (D.C. Cir. 1985)
(per curiam) (limiting “costs on appeal” under Rule 7 to “those that may be taxed
against an unsuccessful litigant under Federal Appellate Rule 39”). The Sixth
1057 (7th Cir. 1998), we need not address mootness in this case because our decision
today does not terminate this appeal. Rather, we retain jurisdiction in order to address
any issues remaining following remand, such as those raised by Sciaroni, which we
set aside until the more fundamental issue of class certification is properly
determined.
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Circuit, for example, upheld the inclusion of delay-based administrative costs in an
appeal bond in part because the applicable state law provided for the prevailing party
on appeal to recover “any damages incurred, including reasonable attorney’s fees and
costs.” In re Cardizem CD Antitrust Litig., 391 F.3d 812, 817-18 (6th Cir. 2004)
(emphasis added). By the same logic, the Tenth Circuit reversed an appeal bond that
included delay costs, as no rule or statute applied allowing for their recovery.
Tennille, 774 F.3d at 1255.
We find our sister circuits’ approach sensible and fair. By linking the amount
of the bond to the amount the appellee stands to have reimbursed, the rule secures
the compensation due to successful appellees while avoiding creating “an
impermissible barrier to appeal” through overly burdensome bonds. See Adsani, 139
F.3d at 76. Accordingly, we hold that “costs on appeal” for Rule 7 purposes include
only those costs that the prevailing appellate litigant can recover under a specific rule
or statute applicable to the case at hand. This approach is consistent with our recent
ruling in In re Uponor, Inc., F1807 Plumbing Fittings Products Liability Litigation,
716 F.3d 1057, 1062 (8th Cir. 2013). In Uponor, the district court ordered class
members appealing a settlement agreement to post a $170,000 Rule 7 bond comprised
of $25,000 in direct appeal costs and the rest reflecting the expected administrative
delays caused by the appeal. No.11-MD-2247, 2012 WL 3984542, at *6 (D. Minn.
Sept. 11, 2012). On appeal, the class members argued that the bond was excessive
because, among other reasons, it improperly included delay-based administrative
costs. We agreed, “staying the requirement that Appellants post an appeal bond in
excess of [the] $25,000 [in direct appeal costs].” Uponor, 716 F.3d at 1062 (internal
quotation marks omitted). Though we did not directly address the question this case
presents (as the parties did not pursue the matter following our stay), our reduction
of the bond in Uponor to reflect only the direct appeal costs suggests that the more
tenuous costs of administration are properly excluded in an appeal bond.
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In light of our holding, we reverse and remand for the district court to reduce
the Rule 7 bond to reflect only those costs that Appellees will recover should they
succeed in any issues remaining on appeal following the district court’s
reconsideration of class certification.
III. Conclusion
The record provides an inadequate basis for effective appellate review because
the district court failed to articulate its analysis of the numerous disputed issues of
law and fact regarding the propriety of class certification. We accordingly remand
this case to the district court with instructions to conduct and articulate a rigorous
analysis of Rule 23(a)’s certification prerequisites as applied to this case, which must
expressly evaluate the arguments raised in Olson’s objection.5 We also reverse the
order of the district court as to the amount of the Rule 7 appeal bond and remand for
recalculation consistent with this opinion. This panel retains jurisdiction over any
remaining issues following the district court’s disposition on remand. See 28 U.S.C.
§ 2106 (granting appellate courts the power to “require such further proceedings to
be had as may be just under the circumstances”). Within 120 days, the district court
shall certify to this Court its findings and conclusions supporting its reconsideration
of class certification.
5
Appellant Olson’s request for reassignment upon remand is denied. See
Liteky v. United States, 510 U.S. 540, 555-56 (1994) (“Not establishing bias . . . are
expressions of impatience, dissatisfaction, annoyance, and even anger, that are within
the bounds of what imperfect men and women, even after having been confirmed as
federal judges, sometimes display.”).
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