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Federal Judge Rejects Ameritrade Settlement
Written by Evan Schuman
June 15, 2008
One day after lawyers presented a proposed settlement in the Ameritrade 6.2 million-customer data breach, a U.S. federal court judge tentatively rejected the settlement (on June 13), questioning the value of the deal for the consumer victims and the size of the $1.87 million attorneys' fees.
San Francisco-based U.S. District Court Chief Judge Vaughn R. Walker gave lawyers on both sides until June 26 to address his concerns.
The judge didn't specifically say that the lawyer's fees were too high, but merely that "plaintiffs' counsel has not established the basis for its fee request," leaving himself the opportunity to potentially approve the figure if he is satisfied with a justification.
But Walker's key concern was whether the settlement adequately compensates the consumer victims. "Neither party has submitted any facts which would allow the court to make a proper valuation of the settlement, which on its own does not include any monetary relief," the judge wrote.
Walker had suggested on Thursday (June 12) that Ameritrade could purchase insurance that would cover any future identity theft claims. On Friday, he was less subtle.
On Thursday, Walker wrote, "the court analogized the preclusion this settlement affords defendant to the coverage or risk-shifting provided by insurance. Coverage against the risk of claims for identify theft and related claims is widely available to companies such as TD Ameritrade."
"The court inquired whether TD Ameritrade had obtained a quote on a policy that would cover the risk of liability on the claims that are precluded under this settlement agreement. TD Ameritrade's counsel stated that he did not believe such coverage had been sought," Walker wrote. "TD Ameritrade's counsel is directed to obtain at least two quotes on such coverage from qualified underwriters or insurance brokers."
The judge also objected to the fact that the proposed settlement didn't say how many of the impacted consumers would have to agree to the deal before it would be confirmed. Typically, such a settlement would say that if fewer than a certain percentage of those impacted agree, the deal would go away.
"Under the settlement agreement, the parties retain the option to terminate the settlement pursuant to an agreed number of opt-outs to be submitted to the court in camera," which means privately presented to the judge in chambers. "This 'magic number' is not disclosed to the class, nor has it been disclosed to the court in camera. The parties are ordered to submit that information by June 26, 2008."
The judge also referenced in-court concerns expressed by class representative plaintiff Matthew Elvey that the spam-blocking software being offered to impacted consumers—Trend Micro Internet Security Pro, which is listed on the vendor's site as selling for $69.95—had little value as it's being offered for free (with a rebate).
"A dispute came to light at the hearing whether this element of the settlement has any true economic value," Walker wrote. "TD Ameritrade is directed to provide the court with the actual cost of this element of the proposed settlement."
Of greater potential concern, Elvey's in-court comments suggested that he had been "threatened" into signing the settlement agreement. Those threats apparently involved having him removed as a named plaintiff, which would potentially cost him a $10,000 fee.
Walker quoted Elvey as having "suggested that the gains the class would receive under the settlement had the appearance of benefitting the class but were, in operation, trivial." The judge added that, "at the conclusion of the hearing, Mr. Elvey stated that he was 'threatened' into signing the settlement agreement. Plaintiff's counsel shall clarify this situation" by June 26. |
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Evan Schuman is the former retail technology editor for eWEEK.com, PCMagazine, CIOInsight and retail reporter for RISNews and Consumer Goods Technology. Having covered IT issues for 21 years - and other stuff like legal affairs, politics, Wall Street and the environment for about eight years before that - Schuman is in a good position to gripe about technology trends and sometimes accidentally make a good point.
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