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PLAINTIFF’S MPAS ISO UNOPPOSED MTN. FOR PRELIM. APPROVAL OF PROPOSED CLASS
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ANTHONY J. ORSHANSKY, Cal. Bar. No. 199364 [email protected] JUSTIN KACHADOORIAN, Cal. Bar No. 260356 [email protected] COUNSELONE, PC 9301 Wilshire Blvd., Suite 650 Beverly Hills, California 90210 Telephone: (310) 277-9945 Facsimile: (424) 277-3727
JOSEPH J SIPRUT* [email protected] GREGG M. BARBAKOFF [email protected] SIPRUT PC 17 North State Street, Suite 1600 Chicago, Illinois 60602 Telephone: (312) 236-0000 Fax: (312) 470-6588 *Pro hac vice application to be filed
Counsel for Plaintiffs LANIE LIM and JOHN LEWERT individually and on behalf of all others similarly situated
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
LANIE LIM and JOHN LEWERT, individually and on behalf of all others similarly situated,
Plaintiffs,
v. VENDINI, INC. a California corporation, Defendant.
Case No. 1-14-cv-259897 ASSIGNED FOR ALL PURPOSES TO:
Hon. Peter H. Kirwan CLASS ACTION
PLAINTIFFS’ MEMORANDUM OF
POINTS & AUTHORITIES IN
SUPPORT OF UNOPPOSED
MOTION FOR PRELIMINARY
APPROVAL OF PROPOSED CLASS
SETTLEMENT
DEPT: 1
DATE: April 18, 2014
TIME: 9:00 A.M.
PLAINTIFF’S MPAS ISO UNOPPOSED MTN. FOR PRELIM. APPROVAL OF PROPOSED CLASS
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TABLE OF CONTENTS
I. INTRODUCTION ..............................................................................................................1
II. FACTUAL BACKGROUND ..............................................................................................2
III. THE PROPOSED SETTLEMENT .....................................................................................4
A. Certification of the Proposed Class................................................................................4
B. Compensation ................................................................................................................5
C. Class Notice ...................................................................................................................5
D. Incentive Award to Class Representatives .....................................................................6
E. Attorneys’ Fees and Costs .............................................................................................6
IV. THE PROPOSED SETTLEMENT IS FAIR AND SHOULD RECEIVE PRELIMINARY
APPROVAL ........................................................................................................................6
A. The Proposed Settlement Meets All criteria Establishing Fairness ...............................6
1. Strength of the Case ..............................................................................................7
2. Risk, Expense & Complexity of Case ....................................................................9
3. Extent of Discovery ..............................................................................................11
4. Amount of Recovery ............................................................................................12
5. Experience of Counsel .........................................................................................13
V. THE PROVISIONAL CLASS SHOULD BE CERTIFIED; THE FORM AND METHOD
OF NOTICE TO THE CLASS MEMBERS SHOULD BE APPROVED; AND, A
HEARING REGARDING FINAL APPROVAL OF THE SETTLEMENT SHOULD BE
SCHEDULED ....................................................................................................................13
A. The Provisional Class Should be Certified ..................................................................13
1. Numerosity .......................................................................................................14
2. Commonality....................................................................................................14
3. Typicality .........................................................................................................15
4. Adequacy of Representation ............................................................................16
B. The Form & Method of Service of Class Notice should be Approved ........................16
VI. CONCLUSION ..................................................................................................................18
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TABLE OF AUTHORITIES UNITED STATES SUPREME COURT CASES
Eisen v. Carlisle & Jacquelin,
417 U.S. 156, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974). ................................................................17
Protective Comm. For Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson,
390 U.S. 414, 88 S. Ct. 1157, 20 L. Ed. 2d 1 (1968). ......................................................................7 UNITED STATES CIRCUIT COURT OF APPEALS CASES Ace Heating & Plumbing Co. v. Crane Co.,
453 F.2d 30 (3d Cir. 1971) ............................................................................................................17
City of Detroit v. Grinnell Corporation,
495 F.2d 448 (2d Cir. 1974) ........................................................................................................7, 9
Class Plaintiffs v. City of Seattle,
955 F.2d 1268 (9th Cir. 1992) ........................................................................................................7
Franks v. Kroger Co.,
649 F.2d 1216 (6th Cir. 1981) ......................................................................................................17
Grunin v. International House of Pancakes,
513 F.2d 114 (8th Cir. 1975) ........................................................................................................17
Hanlon v. Chrysler Corp.,
150 F.3d 1011 (9th Cir. 1998) ............................................................................................ 7, 15-16
Harris v. Palm Springs Alpine Estates, Inc.,
329 F.2d 909 (9th Cir. 1964) ........................................................................................................14
In re Mego Financial Corp. Sec. Litigation,
213 F.3d 454 (9th Cir. 2000) ..........................................................................................................7
Officers for Justice v. Civil Serv. Comm’n of City & County of San Francisco,
688 F.2d 615 (9th Cir. 1982) ...........................................................................................................7
Rodriguez v. Hayes,
591 F.3d 1105 (9th Cir. 2010) ......................................................................................................16
Torrisi v. Tucson Elec. Power Co.,
8 F.3d 1370 (9th Cir. 1993) .............................................................................................................7
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UNITED STATES DISTRICT COURT CASES Colesberry v. Ruiz Food Products, Inc.,
2006 WL 1875444 (E.D. Cal. June 30, 2006) ...............................................................................17
Ellis v. Naval Air Rework Facility,
87 F.R.D. 15 (N.D. Cal. 1980) ........................................................................................................7
In re Immune Response Secs. Litigation,
497 F. Supp. 2d 1166 (S.D. Cal. 2007) ...........................................................................................6
Linney v. Cellular Alaska P’ship,
1997 WL 450064 (N.D. Cal. July 18, 1997) ...............................................................................7, 9
Montgomery v. Beneficial Consumer Disc. Co.,
2005 WL 497776 (E.D. Pa. Mar. 2, 2005) .....................................................................................17
Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp.,
323 F.Supp. 364 (E.D. Pa. 1970) ..................................................................................................16
Schramm v. JPMorgan Chase Bank, N.A.,
2011 WL 5034663 (C.D. Cal. Oct. 19, 2011) ...............................................................................14
STATE COURT CASES
7-Eleven Owners for Fair Franchising v. Southland Corporation,
85 Cal.App.4th 1135 (2000) ...........................................................................................................9
Bowles v. Superior Court,
44 Cal.2d 574 (1955) ....................................................................................................................14
Daar v. Yellow Cab Co.,
67 Cal.2d 695 (1967) .......................................................................................................................4
Dunk v. Ford Motor Company,
48 Cal. App.4th 1794 (1996) ......................................................................................... 6, 12-13, 17
Global Minerals & Metals Corp. v. Superior Court,
113 Cal. App. 4th 836 (2003) .......................................................................................................13
In re Tobacco II Cases,
46 Cal. 4th 298 (2009) ....................................................................................................................6
Richmond v. Dart Industries, Inc.
29 Cal.3d 462 (1981) ......................................................................................................................4
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Sav-On Drug Stores, Inc. v. Superior Court,
34 Cal. 4th 319 (2004) ..................................................................................................................14
Wershba v. Apple Computer, Inc.,
91 Cal. App. 4th 224 (2001) .........................................................................................................16
STATUTES AND FEDERAL RULES Cal. Civ. Code § 382………………………………………………………………………...passim Cal. Civ. Code § 1747.08……………………………………………………………………passim Cal. Civ. Code § 1750….……………………………………………………………………passim Cal. Civ. Code § 1798.80……………………………………...………………………….…passim Cal. Bus. & Prof. Code § 17200………………………………………………………….…passim Cal. Bus. & Prof. Code § 17500………………………………………………………….…passim 18 U.S.C. § 1030………………………………………………………………………….…passim 18 U.S.C. § 2711…………………………………………………………………………….passim Fed. R. Civ. P. 23 .................................................................................................................. passim MISCELLANEOUS
Alba Conte & Herbert B. Newberg, NEWBERG ON CLASS ACTIONS
(4th ed. 2001). ...............................................................................................................................13
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I. INTRODUCTION
This action arises out of a 2013 criminal data intrusion (the “Data Security Incident”)
experienced by Defendant Vendini, Inc. (“Defendant” or “Vendini”), a California-based company
providing online and box-office ticketing services for event venues across the country. Plaintiffs
Lanie Lim and John Lewert (“Plaintiffs”) seek damages and injunctive relief on behalf of a
nationwide class of consumers whose personal identification information (“PII”) was put at risk
by the Data Security Incident.
After a substantial exchange of information and documents, consultations with experts in
the Payment Card Industry as well as financial and insurance-coverage specialists, two mediations
with a retired judge, and numerous rounds of multilateral negotiations involving two insurance
carriers both of whom contested coverage, the parties have reached a classwide settlement.
The settlement is the product of informed negotiations between attorneys with substantial
class-action experience, conducted at arm’s length and under the guidance of the Honorable John
Leo Wagner (Ret.), who personally spent more than 48 hours in mediations and conferences and
performing other work in this case. (Honorable John Leo Wagner (Ret.) Declaration, filed
concurrently herewith, ¶ 19.) Under the terms of the settlement, class members will benefit from
the creation of a non-reversionary common fund of $3,000,000.00 to resolve all claims against
Defendant.
This is an excellent result given the heavily contested claims at issue in an evolving area
of law, Defendant’s formidable defenses, and the risk of non-recovery owing to Defendant’s
financial condition and uncertainty over insurance coverage. The settlement provides meaningful
benefits to unnamed members of the class and is fair, reasonable, and adequate to compensate
them for the expenses and losses resulting from the Data Security Incident.
Accordingly, Plaintiffs move the Court for an order: (1) preliminarily approving the Class
Action Settlement Agreement (“Settlement Agreement”) as fair, reasonable, and adequate; (2)
preliminarily approving the form, manner, and content of the Notice, Summary Notice, and Claim
Form; (3) provisionally certifying the Class under the California Code of Civil Procedure section
382 for settlement purposes only; (4) provisionally appointing Plaintiffs as the class
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representatives for settlement purposes only; and (5) provisionally appointing the law firms of
CounselOne, PC, Siprut PC, and Law Office of Scott E. Brown as Class Counsel for settlement
purposes.
II. FACTUAL BACKGROUND
Vendini provides online and box-office ticketing, marketing, and patron management
services for small- to medium-sized business customers (referred to by Vendini as “Members”)
throughout the United States. (Declaration of Mark Tacchi, filed concurrently herewith, ¶ 2.)
Vendini’s Members sell tickets to the Members’ customers, who are referred to by Vendini as
“Patrons.” (Id.) Beginning in May 2013, Defendant notified its Members and their Patrons whose
PII resided on its computer networks that on or about April 25, 2013, it had detected a potential
unauthorized access by a third party to its databases and to Patrons’ PII, including names, mailing
addresses, e-mail addresses, phone numbers, and credit card numbers and expiration dates (the
“Data Security Incident”). (See Decl. of Attorney Anthony J. Orshansky ¶ 4, filed concurrently
herewith.)
Plaintiff Lim, by and through her counsel, sent Defendant a letter in June 2013 outlining
claims on behalf of Plaintiff Lim and the proposed Class. (Id. at ¶ 6.) Plaintiff Lim’s claims would
crystallize over the course of the litigation to include claims under the Consumer Legal Remedies
Act, Cal. Civ. Code §§ 1750, et seq.; Unfair Business Practices, Cal. Bus. & Prof. Code §§ 17200,
et seq.; False Advertising, Cal. Bus. & Prof. Code §§ 17500, et seq.; California’s data-protection
statute, Cal. Civ. Code §§ 1798.80, et seq.; Song-Beverly Credit-Card Act, Cal. Civ. Code §
1747.09; the Stored Communications Act, 18 U.S.C. § 2711; Computer Fraud and Abuse Act, 18
U.S.C. § 1030; as well as breach of contract, breach of implied contract, negligence, unjust
enrichment, and invasion of privacy. Plaintiffs contend that Vendini’s actions and/or inaction
resulted in unauthorized third-party access to its databases and putative Class Members’ personal
identification information, including names, mailing addresses, e-mail addresses, phone numbers,
and credit card numbers and expiration dates.
In response to Plaintiff Lim’s letter the parties began a dialogue that lasted several months,
during which time they exchanged substantial information about the claims and Vendini’s
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defenses. The parties eventually agreed to mediate this matter with the Honorable John Leo
Wagner (U.S. Magistrate, District of Oklahoma, retired). (See id. at Orshansky Decl. ¶¶ 6-12.)
Prior to the first mediation the parties exchanged further correspondence as well as draft
pleadings, and Class Counsel conducted a thorough investigation, including but not limited to (a)
communicating with Plaintiffs and other putative class members regarding the Data Security
Incident; (b) investigating Defendant’s business and organizational structure, as well as the
ticketing industry generally; (c) consulting with experts in the payment card industry (“PCI”) who
had experience with PCI data security requirements and PCI compliance; (d) reviewing a
substantial amount of PCI compliance documentation provided by Defendant, including reports
from Defendant’s PCI compliance auditors, as well as communications and correspondence
between and among Defendant and third parties following Defendant’s notification to putative
Class Members; (e) communicating with government agencies regarding Freedom of Information
Act Requests; and (f) researching the evolving case law and developing legal and factual theories
to maintain the alleged claims. (Id. at ¶ 7.)
Before the first mediation session with Judge Wagner, Defendant’s general liability carrier,
St. Paul Fire & Marine Insurance Co. (“St. Paul” or “Travelers”), filed a declaratory relief action
against Defendant in the United States District Court, Northern District of California, Case No.
3:13-cv-04458 SI, asserting that St. Paul had no duty to defend Defendant or indemnify it for any
damages arising from the claims asserted herein. (Orshansky Decl. ¶ 8.)
The parties along with a corporate representative and counsel representing St. Paul
participated in a full-day mediation session with Judge Wagner in San Francisco, California,
during which further information was exchanged, including information regarding the Data
Security Incident, Defendant’s financial condition, and the serious coverage issues under the St.
Paul policy issued to Defendant. (Id. at ¶ 9.)
The parties were unable to reach a resolution at the first mediation session but continued
the mediation and settlement discussions with the assistance of Judge Wagner, including many
very lengthy telephone conferences with Judge Wagner. (Id. at ¶ 10.) Class Counsel also
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conducted further investigation, including consulting with financial and insurance coverage
specialists. (Ibid.)
The parties participated in a second full-day mediation session with Judge Wagner in Los
Angeles, California, in which St. Paul and Defendant’s professional liability carrier, Certain
Underwriters at Lloyd’s, Syndicates 632 and 2623 (“Beazley”), also participated. (Id. at ¶ 11.)
At the end of the second mediation session, Judge Wagner made a mediator’s proposal to
resolve the claims asserted by Plaintiffs on behalf of the putative class, which the parties accepted
and memorialized in a memorandum of understanding. (Id. at ¶ 12.) The parties thereafter
engaged in extensive negotiations to draft the Settlement Agreement and supporting documents, a
process that involved coordinating with Beazley and Travelers in order to reach a global resolution.
(Id. at ¶ 13.)
III. THE PROPOSED SETTLEMENT
After months of negotiations, the parties were able to agree as to the form of a Settlement
Agreement, which has been fully executed by all parties and attached hereto (attached hereto as
Exhibit 1).
The proposed Settlement Agreement provides the following:
A. Certification of the Proposed Class
In order to avoid the risk and expense of litigating whether a class should be certified, the
parties agreed for the purposes of settlement only that this action meets the requirements of a class
action pursuant to Code of Civil Procedure section 382 and well-established California case law,
i.e., the existence of an ascertainable class; a well-defined community of interest; predominant
common questions of law or fact; the class representatives’ claims or defenses are typical of the
class; and the class representatives and their counsel can adequately represent the interests of the
class. Daar v. Yellow Cab Co., 67 Cal.2d 695, 704 (1967); Richmond v. Dart Industries, Inc. 29
Cal.3d 462, 470 (1981).
///
///
///
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The parties agree that the Class should be defined as:
All persons who are domiciled or reside in the United States or its territories
whose Personal Identification Information, as defined in the Settlement
Agreement, resided on Vendini, Inc.’s computer network servers on or before
April 25, 2013 (hereinafter referred to as the “Class”).
B. Compensation
The Settlement Agreement establishes a total settlement fund of $3,000,000. This amount
includes all settlement payments to Class members, all attorneys’ fees and litigation costs, the
representative Plaintiffs’ service payments, and the costs of providing notice and claims
administration.
Class members may submit claims for either or both of Unreimbursed Identity Theft Losses
of up to three thousand dollars ($3,000.00), and/or Unreimbursed Expenses of up to one thousand
dollars ($1,000.00), which are attributable to the Data Security Incident as alleged herein and
occurred on or after April 25, 2013, through the end of the Claims Period (as provided for in the
Settlement Agreement). See Settlement Agreement Section 4.2.
C. Class Notice
To the extent that Defendant possesses the name and contact information for any person it
believes to be a Class member, Defendant shall provide that information to the Claims
Administrator within seven (7) calendar days after the Court enters the Preliminary Approval
Order. Subject to the Court granting Preliminary Approval of the Class Settlement and Provisional
Class Certification, within fourteen (14) calendar days after the Court enters the Preliminary
Approval Order, the Claims Administrator will begin providing notice to the Class by the
following methods:
Notice. The Claims Administrator will create and maintain the Class website, to be
activated within ten (10) business days of Preliminary Approval. On the Class Website, the Claims
Administrator will post the settlement documents and case-related documents such as the
Settlement Agreement, the Claim Form, and the Preliminary Approval Order. The website shall
be designed and constructed to accept electronic Claim Form submission. The Claims
Administrator shall also disseminate the Notice and Claim Form, as provided for in the Settlement
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Agreement, via e-mail to all Class Members for whom Defendant has provided e-mail addresses.
See Settlement Agreement Section 5.4.
Summary Notice. The Claims Administrator shall disseminate Summary Notice via e-
mail to each putative Class member for which Vendini has an e-mail address. The Claims
Administrator shall also send Summary Notice via postcard (U.S. Mail) to Class members for
whom Defendant has not provided e-mail addresses or whose e-mail notices are returned, or are
otherwise known to be undeliverable. Id. at 5.4.3.2. The Claims Administrator shall disseminate
the Summary Notice in one daily and one weekend issue of USA Today. Id.
D. Incentive Award to Class Representatives
Subject to Court approval, Plaintiffs Lanie Lim and John Lewert will request a service
award of $2,500.00 each in recognition of their contributions to the Class, and the risk they
incurred in commencing the action, both financial and otherwise. The Court does not need to
decide at this juncture whether to approve Plaintiffs’ request for service award. If the Court grants
preliminary approval of the settlement, Plaintiffs will file a separate motion in support of this
request.
E. Attorneys’ Fees and Costs
Subject to Court approval, Plaintiffs’ counsel will request and Vendini will not oppose an
award in an amount equal to thirty percent of the gross settlement fund in fees and $25,000.00 in
costs. The Court does not need to decide at this juncture whether to approve Plaintiffs’ request for
attorneys’ fees and costs. If this Court grants preliminary approval of the settlement, Plaintiffs
will file a separate motion in support of this request.
IV. THE PROPOSED SETTLEMENT IS FAIR AND SHOULD RECEIVE
PRELIMINARY APPROVAL.
A. The Proposed Settlement Meets All Criteria Establishing Fairness.
The requirements for class certification under section 382 are analogous to the
requirements for class certification under the federal rules of civil procedure. In re Tobacco II
Cases, 46 Cal. 4th 298, 318 (2009). The court must determine the settlement is fair, adequate, and
reasonable. Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794, 1801 (1996) (citing Fed. R. Civ. P.
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23). As explained by the court in In re Immune Response Secs. Litigation, 497 F. Supp. 2d 1166,
at 1169-1170 (S.D. Cal. 2007):
‘Although Rule 23(e) is silent respecting the standard by which a proposed settlement is to be evaluated, the universally applied standard is whether the settlement is fundamentally fair, adequate and reasonable.’ Officers for Justice v. Civil Serv. Comm’n of City & County of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982); see also Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993). When determining whether approval of a settlement is warranted, courts consider ‘several factors which may include, among others, some or all of the following: [1] the strength of plaintiffs’ case; [2] the risk, expense, complexity, and likely duration of further litigation; [3] the risk of maintaining class action status throughout the trial; [4] the amount offered in settlement; [5] the extent of discovery completed, and the stage of the proceedings; [6] the experience and views of counsel; [7] the presence of a governmental participant; and [8] the reaction of the class members to the proposed settlement.’ Torrisi, 8 F.3d at 1375; see also Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998). Further, ‘[t]o survive appellate review, the district court must show it has explored comprehensively all [fairness] factors.’ Hanlon, 150 F.3d at 1026 (citing Protective Comm. For Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 434, 88 S. Ct. 1157, 20 L. Ed. 2d 1 (1968)). Finally, ‘the settlement may not be the product of collusion among the negotiating Parties.’ [In re] Mego Financial Corp. Sec. Litigation, 213 F.3d [454] at 458 [(9 Cir. 2000)] (citing Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1290 (9th Cir. 1992)).
Generally, “the fact that the settlement agreement was reached in arm’s length negotiations
after relevant discovery [has] taken place create[s] a presumption that the agreement is fair.”
Linney v. Cellular Alaska P’ship, 1997 WL 450064, at *5 (N.D. Cal. July 18, 1997), aff’d, 151
F.3d 1234 (9th Cir. 1998) (citing Ellis v. Naval Air Rework Facility, 87 F.R.D. 15, 18 (N.D. Cal.
1980), aff’d, 661 F.2d 939 (9th Cir. 1981)). In this context “[i]t cannot be overemphasized that
neither the trial court in approving the settlement nor [an appellate court] in reviewing that
approval have the right or the duty to reach any ultimate conclusions on the issues of fact and law
which underlie the merits of the dispute. It is well settled that in the judicial consideration of
proposed settlements, ‘the [trial] judge does not tryout or attempt to decide the merits of the
controversy,’ [citation] and the appellate court ‘need not and should not reach any dispositive
conclusions on the admittedly unsettled legal issue.’” City of Detroit v. Grinnell Corporation, 495
F.2d 448, at p. 456 (2d Cir. 1974).
1. Strength of the Case
Plaintiffs assert that Vendini unlawfully collected and retained ’ putative Class members’
personal identification information, failed to implement adequate and reasonable safeguards to
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prevent unauthorized third-party access to such information, and failed to properly notify affected
customers of the Data Security Incident in violation of various California and federal laws,
including Cal. Civ. Code §§ 1750, et seq., Cal. Bus. & Prof. Code §§ 17200, et seq., and Cal. Bus.
& Prof. Code §§ 17500, et seq.
Among other things, Plaintiffs contend that Vendini failed to encrypt putative Class
members’ data; failed to take all reasonable steps to destroy or arrange for the destruction of
records within its custody or control; and failed to provide prompt and adequate warnings of
security breaches or vulnerabilities, all of which caused Plaintiffs and the Class to sustain
economic and non-economic damages related to the Data Security Incident and subsequent
occurrences and/or attempts to prevent identity theft. Plaintiffs believe they could establish
Vendini’s liability at trial.
While Plaintiffs believe in the strength of their case, they must realistically acknowledge
several factors which advise acceptance of this settlement. First, Vendini insists that it will mount
a vigorous defense, asserting, among other things, that
it had adopted industry-standard data-security protocols and had been certified to be in
compliance with the Payment Card Industry Data Security Standards (“PCI DSS”);
it had not entered into a contract with consumers concerning the use of their
information;
it cannot be held liable to any Class members who have not suffered unreimbursed out-
of-pocket expenses in connection with the Data Security Incident;
Plaintiffs and Class members lacked standing to assert claims because they have not
suffered actual injury;
the number of putative Class members, if any, who suffered unreimbursed out-of-
pocket expenses is very small; and
Plaintiffs would face individualized issues regarding causation and damages that would
defeat class certification.
(Orshansky Decl. ¶¶ 18, 19.)
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While Plaintiffs strongly believe that they could overcome these defenses, they cannot
responsibly ignore the risk that this Court or a reviewing court might accept some or all of
Defendant’s defenses.
Notwithstanding, “the merits of the underlying class claims are not a basis for upsetting
the settlement of a class action; the operative word is ‘settlement.’” 7-Eleven Owners for Fair
Franchising v. Southland Corporation, 85 Cal.App.4th 1135, 1150 (2000) (emphasis added).
Even “[t]he fact that a proposed settlement may only amount to a fraction of the potential recovery
does not, in and of itself, mean that the proposed settlement is grossly inadequate and should be
disapproved.” City of Detroit, 495 F.2d at 455. Courts have aptly held that “it is the very
uncertainty of outcome in litigation and avoidance of wasteful and expensive litigation that induce
consensual settlements. The proposed settlement is not to be judged against a hypothetical or
speculative measure of what might have been achieved by the negotiators.” Linney, 1997 WL
450064, at *5 (emphasis omitted).
Under the Settlement the Class will realize substantial and immediate benefits once the
settlement is approved. It is highly unlikely that Plaintiffs will obtain a better outcome in this case
– even after prevailing at trial on the merits. Moreover, any recovery would be years in the future,
at significantly greater expense to the Class. These factors weigh in favor of preliminary approval.
2. Risk, Expense & Complexity of Case
The proposed settlement makes final decision on several disputed factual and legal issues
unnecessary, and if the case does not settle, the expense of continued litigation will be significant.
Due to the nature of Plaintiffs’ case, trial will require an examination of Defendant’s policies,
procedures, and practices, as well as an examination of a number of Defendant’s current and
former employees. The costs of testifying experts on data security and notice dissemination,
discovery, class certification, summary-judgment motion practice, as well as other pre-trial, trial
and likely appellate expenses, will be substantial.
There are also risks inherent in the class certification process, as well as other risks and
uncertainties relating to liability and damages and potential relief. These litigation risks, coupled
with the substantial material benefits the settlement will garner for Class members, weigh in favor
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of preliminary and ultimately final approval of the settlement. Correspondingly, independent
proceedings in various states could result if the Court concludes it cannot certify a nationwide class
in a contested case. Any appeals could take years to resolve. These expense and delay resulting
from such collateral and follow-on proceedings is likely to be substantial. This settlement provides
a reasonably prompt resolution with meaningful relief to all Class members without these
additional expenditures of time and money. This factor weighs in favor of preliminary approval.
In addition, several other factors support a settlement now as opposed to continued
litigation. Even if Plaintiffs were able to prevail on the merits (and successfully certify the Class
on a contested basis), there is a high likelihood that the Plaintiffs would be unable to recover a
more substantial sum owing to Defendant’s financial condition and the financial impact of the
Data Security Incident. (See Decl. of Vendini CEO Mark Tacchi, filed concurrently herewith, ¶¶
7-9.) Class Counsel reviewed Defendant’s financials and consulted with coverage experts and
accountants before agreeing to settle. (Orshansky Decl. ¶¶ 10, 22.)
Related to this financial assessment, is a serious question as to the availability of insurance
coverage for the claims asserted by Plaintiffs. Although Defendant had a commercial general
liability (CGL) policy and a professional liability policy, there were significant coverage disputes.
(Orshansky Decl. ¶ 23; Declaration of Hon. John Leo Wagner (Ret.), filed concurrently herewith,
¶¶ 17, 18, 23.) St. Paul, the underwriter of Defendant’s CGL policy, denied coverage entirely and
filed a declaratory-relief action in federal district court prior to the first mediation in this case.
(Ibid.; see also Declaration of Joy K. Fausey, filed concurrently herewith, ¶¶ 3, 4.) Beazley,
Defendant’s professional-liability carrier, disputed primary coverage and contended that St. Paul
was the primary insurer. (Ibid. See also Declaration of Kevin Kieffer, filed concurrently herewith,
¶ 8.)
Moreover, the Beazley policy is a “burning limits” or “defense within limits” policy, which
meant that litigation would have likely consumed a substantial amount of the insurance money that
may have been available to satisfy a judgment had Plaintiffs prevailed. (Orshansky Decl. ¶ 24.)
Thus, if litigation were to continue on a contested basis, it would be entirely possible that Vendini’s
insurers would successfully defeat Vendini’s tender – which, again, would result in substantially
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less or even no money for the Class. In short, to some extent Class Counsel had to make a decision
whether to settle for a compromised amount now or litigate with the probability of obtaining an
uncollectable judgment. (Ibid. See also Wagner Decl. ¶¶ 23, 25.)
For all these reasons, and for all of the other reasons detailed above, settlement is especially
appropriate here.
3. Extent of Discovery
Class Counsel conducted a detailed investigation into the facts and law relating to the
matter alleged. (See Orshansky Decl., passim.) Class Counsel began investigating Plaintiffs’
claims long before asserting their claims and have since engaged in an exchange of a substantial
amount of documentation and information. (Ibid.) As detailed above (see Section II, supra), Class
Counsel reviewed thousands of pages of documents relating to the Data Security Incident,
including reports from Defendant’s PCI compliance auditors as well as communications and
correspondence between and among Defendant and third parties; engaged in lengthy consultations
with data-security, financial, and insurance-coverage experts; communicated with law
enforcement; and interviewed Plaintiffs and other Class members. (Orshansky Decl. ¶ 7.) Class
Counsel also researched the law relating to data breaches and settlements in previous data-breach
cases in order to evaluate the range of settlement outcomes. (Id. at ¶¶ 7, 30.)
Through this investigation Class Counsel were able to determine the size of the Class and
the number of Class members likely affected by the Data Security Incident, which allowed them
to value the claims, apply appropriate discounts for settlement purposes, and ultimately, negotiate
the creation of a settlement fund that will be distributed to Class members through direct monetary
payments of unreimbursed identity-theft losses and unreimbursed expenses related to identity theft
and the prevention thereof.
For the last several months Plaintiffs and their counsel conducted intensive arm’s-length
negotiations with Vendini through mediations, telephonic conferences, and the exchange of
numerous written proposals. (Orshansky Decl. ¶¶ 8-13.) As detailed in the accompanying
Declaration of Judge Wagner, who served as the parties’ mediator, mediation sessions occurred at
arm’s length over the course of months, with numerous experienced lawyers all advocating
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zealously for their positions. The settlement that is now submitted to the Court is the result of that
extensive process and compromise. (See Wagner Decl., filed concurrently herewith, passim.)
Therefore this factor weighs in favor of preliminary approval.
4. Amount of Recovery
Under California law, a presumption of fairness exists where: (1) the settlement is reached
through arm’s length negotiation; (2) investigation and discovery are sufficient to allow counsel
and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the
percentage of objectors is small. Dunk, 48 Cal.App.4th 1794. The proposed settlement is fair
given the strength of Plaintiffs’ case, as well as the risk, expense, complexity and expected duration
of further litigation.
As detailed above, the Class will realize substantial and immediate benefits once the
settlement is approved. The settlement provides for a Gross Settlement Fund of $3,000,000.00,
from which every Class member who files a claim may receive either or both of any unreimbursed
identity theft losses of up to $3,000.00, or unreimbursed expenses of up to $1,000.00 resulting
from the Data Security Incident. (Settlement Agreement, Exhibit 1, § 4.2.)
The Settlement Agreement also provides for each Claimant’s award to be proportionally
increased up to two times the amount claimed if Claimants fail to claim the entire Net Settlement
Fund. (Id. at § 4.3.) If any amount remains in the Net Settlement Fund after the payment of claims,
it will be distributed to a not-for-profit organization whose primary mission is aimed at protecting
consumers’ privacy on the Internet. (Id. at § 4.4.) In this way, Class members submitting claims
will not receive a windfall but any unclaimed funds will be used to advance the objectives of this
litigation. Nothing will revert to Defendant. Thus, the settlement affords Class members a tangible
benefit from the proposed relief.
Another factor in evaluating the adequacy of the settlement is Defendant’s post-incident
compliance. Defendant provided Class Counsel with information showing that, after the Data
Security Incident, it had retained a PCI-authorized forensic investigator to conduct an independent
forensic analysis of the incident pursuant to the PCI guidelines and also undertook proactive
remediation efforts. (Orshansky Decl. ¶¶ 20, 21.) The result was that in July 2013 Defendant
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reported PCI DSS compliance validation with Visa. (Ibid.)1
5. Experience of Counsel
Counsel for Plaintiffs in this action are highly experienced in consumer class actions.
CounselOne, PC, Siprut PC, and Law Office of Scott E. Brown, as well as their firms’ respective
attorneys, have represented hundreds of thousands of consumers in numerous consumer class
actions asserting violations of California’s consumer protection statutes, and have litigated similar
data-breach matters throughout the nation. (See Orshansky Decl. ¶¶ 33-35; Siprut, Decl. ¶ 11.)
In short, Plaintiffs’ attorneys are well qualified to conduct the proposed litigation and to
assess its settlement value. Based on that experience, counsel agrees that the proposed settlement
is fair and adequate to members of the Class.
V. THE PROVISIONAL CLASS SHOULD BE CERTIFIED; THE FORM AND
METHOD OF NOTICE TO THE CLASS SHOULD BE APPROVED; AND A
HEARING REGARDING FINAL APPROVAL OF THE SETTLEMENT SHOULD
BE SCHEDULED.
A. The Provisional Class Should be Certified.
Plaintiffs seek certification of this Action for settlement purposes under California Code of
Civil Procedure section 382. California courts apply a “lesser standard of scrutiny” to certification
of settlement classes. Dunk, 48 Cal.App.4th at 1807, n.19 (addressing the two purposes of the
certification scrutiny: “(1) to keep the lawsuit manageable for trial; and (2) to protect the interests
of the non-representative class members,” and explaining that the first of these purposes is
inapplicable to settlement classes while the second purpose is fulfilled through the final fairness
review process); see also Global Minerals & Metals Corp. v. Superior Court, 113 Cal. App. 4th
836, 859 (2003) (noting the lesser standard of scrutiny for settlement classes). The California
Supreme Court has summarized the standard for determining whether class certification is
appropriate as follows:
1 See Global Registry of Service Providers, entry for Vendini, Inc., available at
http://www.visa.com/splisting/viewSPDetail.do?coName=Vendini%2C%20Inc.&HeadCountryList=U.S.
A.&pageInfo=1%3B30%3BASC%3BcoName (last accessed February 13, 2014).
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Code of Civil Procedure Section 382 authorizes class actions “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court....” The party seeking certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. (citations omitted). The “community of interest” requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.
Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319, 326 (2004). The proposed
certification of this case as a class action meets each of the prerequisites for certification under
California Code of Civil Procedures section 382.
1. Numerosity
To satisfy the numerosity requirement there is no specific number required, nor is a plaintiff
required to state the exact number of potential class members. See Schramm v. JPMorgan Chase
Bank, N.A., 2011 WL 5034663, *3 (C.D. Cal. Oct. 19, 2011) quoting Harris v. Palm Springs Alpine
Estates, Inc., 329 F.2d 909, 913–914 (9th Cir. 1964) (“[I]mpracticability does not mean
impossibility, but only the difficulty or inconvenience of joining all members of the class.”
(internal quotations omitted)); see also 3 Alba Conte & Herbert B. Newberg, NEWBERG ON CLASS
ACTIONS § 7.20, 66 (4th ed. 2001).
In this case, there are approximately 3.9 million persons who, at the time of the Data
Security Incident, had active credit cards and who thus qualify to submit claims for unreimbursed
expenses or losses. (Orshansky Decl. at ¶ 32a.) Accordingly, the Class satisfies the numerosity
requirement. Bowles v. Superior Court, 44 Cal. 2d 574 (1955) (class with 10 members sufficiently
numerous); Rose v. City of Hayward, 126 Cal.App.3d 926, 934 (1981) (class of 48 members
satisfies numerosity requirement.)
2. Commonality
In this case, the commonality requirement is easily met. Plaintiffs allege that Vendini
collected and/or retained Class members’ personal identification information, and failed to
implement proper and adequate safeguards to protect against and notify affected customers of the
Data Security Incident. Thus, the common issues of fact include: (1) whether each Class member
engaged in a transaction with Vendini; (2) whether Vendini required Class members to provide
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personal identification information during transactions; (3) whether Vendini collected and/or
retained Class members’ personal identification information; and (4) the extent to which Vendini
implemented safeguards and notified affected customers of the Data Security Incident.
These common issues of fact lead to several legal questions common to all members of the
Class, including whether Vendini violated California and federal law by allegedly: (1) requesting
and recording Class members’ personal identification information during transactions; (2) failing
to implement proper and adequate safeguards to ensure Class members’ personal identification
information was protected from unauthorized third-party access; and (3) failing to properly and
adequately notify affected Class members of the Data Security Incident.
Furthermore, common questions predominate for the Class because Vendini’s alleged
unlawful conduct is identical with regard to all putative Class members. Thus, the predominance
requirement is satisfied because liability would have been decided predominantly, if not entirely,
upon common evidence of Vendini’s conduct.
3. Typicality
The typicality requirement requires the plaintiffs to demonstrate that the members of the
class have the same or similar claims as the named plaintiffs. “The typicality requirement is met
when the claims of the named plaintiffs arise from the same event or are based on the same legal
theories.” Tate v. Weyerhaeuser Co., 723 F.2d 598, 608 (8th Cir. 1983). In Hanlon, the Ninth
Circuit held that “[u]nder the rule’s permissive standards, representative claims are ‘typical’ if they
are reasonably coextensive with those of absent class members; they need not be substantially
identical.” 50 F.3d at 1020. In this case, Plaintiffs and the Class members were all Vendini
Members’ Patrons and have alleged that Vendini’s collection and/or retention of their personal
identification information, failure to implement proper safeguards, and failure to notify affected
customers of the Data Security Incident violated California and federal law. Accordingly,
Plaintiffs’ claims are typical of the Class members.
/ / /
/ / /
/ / /
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4. Adequacy of Representation
“Resolution of two questions determines legal adequacy: (1) do the named plaintiffs and
their counsel have any conflicts of interest with other class members and (2) will the named
plaintiffs and their counsel prosecute the action vigorously on behalf of the class?” Hanlon, 150
F.3d at 1020. Put another way, the proposed class representative must not have claims that are
antagonistic or conflicting with other members of the class and must share an interest in the
outcome of the case with other class members. Rodriguez v. Hayes, 591 F.3d 1105, 1125 (9th Cir.
2010). Furthermore, proposed class counsel must be competent — a requirement that relies on
counsel’s qualifications. Walters v. Reno, 145 F.3d 1032, 1046 (9th Cir. 1998).
In this case, Plaintiffs have the same interests as the Class — obtaining relief from
Vendini’s alleged unlawful collection and/or retention of its customers’ personal identification
information and failure to prevent and/or promptly notify affected customers of the Data Security
Incident. Plaintiffs have no interests antagonistic to the interests of the proposed Class. (Orshansky
Decl. ¶ 32.d.) Moreover, Plaintiffs’ counsel are well-respected members of the legal community,
have regularly engaged in major complex litigation, and have had extensive experience in
consumer class actions involving similar issues that were of similar size, scope and complexity as
the present case. (See Orshansky Decl. ¶¶ 33-35; Siprut, Decl. ¶ 11.) Accordingly, both Plaintiffs
and their counsel adequately represent the Class.
B. The Form & Method of Service of Class Notice Should Be Approved.
The trial court has broad discretion in approving class notice. Wershba v. Apple Computer,
Inc., 91 Cal. App. 4th 224, 252 (2001). “When the parties reach a settlement agreement before a
class determination and seek to stipulate that the settlement will have class wide scope, a class
notice must be sent to provide absent class members with certain basic information so that they
have an opportunity to consider the terms of the settlement.” 2 NEWBERG, section 11.30, p. 11-
62-11-63. “[T]he contents of a settlement notice must ‘fairly apprise the prospective members of
the class of the terms of the proposed settlement and of the options that are open to them in
connection with [the] proceedings.’” Philadelphia Housing Authority v. American Radiator &
Standard Sanitary Corp., 323 F.Supp. 364, 378 (E.D. Pa. 1970), aff’d sub nom., Ace Heating &
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Plumbing Co. v. Crane Co., 453 F.2d 30 (3d Cir. 1971).” Grunin v. International House of
Pancakes, 513 F.2d 114, 122 (8th Cir. 1975), cert den. 423 U.S. 864, 96 S. Ct. 124, 46 L. Ed. 2d
93 (1975).
The proposed Class notice meets these standards. As demonstrated below, the proposed
written notice goes well beyond the requirements set forth above. The notice provisions provide:
1. A summary of the claims alleged in the action;
2. An explanation of the proposed terms of the settlement, the amount Class members are
entitled to receive under the Settlement Agreement, and the method by which to elect the benefit;
3. An explanation of the Class members’ right to opt-out and/or object to the settlement
within given time-frames;
4. An explanation that the Class members who do not opt-out will be bound by the proposed
settlement and judgment and will have released their claims;
5. An explanation that the Class members who do not opt-out will be represented by
counsel for the named Plaintiffs; and
6. An identification of Class Counsel and a means for making inquiries thereof.
Federal and California courts authorize service of class notice by a variety of reliable
means. In this regard, “[t]here is no statutory or due process requirement that all class members
receive actual notice by mail or other means; rather, ‘individual notice must be provided to those
Class members who are identifiable through reasonable effort.’” Eisen v. Carlisle & Jacquelin,
417 U.S. 156,175-76, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974). Under section 382, “[t]he trial
court has broad discretion to determine whether the settlement is fair.” Dunk, 48 Cal. App. 4th at
1801; see also Colesberry v. Ruiz Food Products, Inc., 2006 WL 1875444, at *7 (E.D. Cal. June
30, 2006) (citing Franks v. Kroger Co., 649 F.2d 1216, 1222-23 (6th Cir. 1981))”; and
Montgomery v. Beneficial Consumer Disc. Co., 2005 WL 497776, at * 6 (E.D. Pa. Mar. 2, 2005)
(“[d]ue process does not require actual notice, but rather a good faith effort to provide actual
notice”).
In this case, the proposed settlement contemplates legal notice summarizing the proposed
settlement terms shall be sent by e-mail to each proposed Class member, and sent by postal mail
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for those Class members for whom Defendant has not provided an e-mail address and shall be
posted on the a settlement website, and published in one daily and one weekend issue of USA
Today. These forms of notice satisfy due process requirements for providing notice to the Class.
Thus, the proposed methods of notice are reasonably calculated to reach the class members by the
best means practicable and should be approved.
VI. CONCLUSION
Based upon the foregoing, and because the proposed settlement is fair, reasonable, and
advantageous to the proposed Class members, Plaintiffs respectfully request that the Court enter
an Order:
A. Preliminarily approving this Settlement Agreement as fair, reasonable, and adequate;
B. Preliminarily approving the Notice, Summary Notice and Claim Form described in
section 5 of the Settlement Agreement, and attached thereto as Exhibits B, C, and D;
C. Provisionally certifying the Class under Cal. Civ. Code section 382 for settlement
purposes only;
D. Appointing Plaintiffs as the Class representatives;
E. Appointing the law firms CounselOne, PC, Law Office of Scott E. Brown, and Siprut
PC as Class Counsel; and
F. Any further relief the Court deems just and proper.
Dated: March 26, 2014 Respectfully submitted,
LANIE LIM and JOHN LEWERT,
individually and on behalf of all others
similarly situated
By: /s/ ___________
One of the Attorneys for Plaintiffs
and the Proposed Putative Class
