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The Cost Of Litigating Class Action Data Breach Suits Continues To Rise

Plaintiffs recently agreed to a $7.1 million settlement in their data breach class action lawsuit against Drizly, North America's largest online alcohol marketplace.

The suit, Barr v. Drizly, LLC, Case No. 1:20-cv-11492 (D. Mass.), contained allegations that a data breach exposed customers' email addresses, dates of birth, hashed passwords, delivery addresses, phone numbers, and IP addresses to third parties on the dark web.

The targeted attack occurred around Feb. 2020. However, Drizly did not discover it until July 2020, according to the suit.

The plaintiffs accused Drizly of negligence, negligence per se, breach of implied contract, unjust enrichment, and violating consumer protection laws in Massachusetts, New York, Arizona, and California. The plaintiffs sought to certify a punitive class.

Drizly moved to compel arbitration after the plaintiffs amended the complaint in Oct. 2020. Drizly argued that the lawsuit was precluded based on the Federal Arbitration Act because all users agreed to terms stating that they would resolve any disputes via individual arbitration.

However, the parties reached a preliminary settlement before the court ruled on the motion.

The settlement provides a cash payment of around $14 to each class member that files a timely and valid claim form. In addition, plaintiffs will receive a portion of up to $447,750 in the form of a credit toward future orders from Drizly.

In asking the court to approve the settlement, the plaintiffs stated that although they "believe they would have prevailed, there are risks involved in data breach litigation - a relatively new area of law - including proving standing and causation." They also noted that there was a "greater risk of non-recovery" because of the "still-developing law."

In addition, the plaintiffs stated that they "likely would have incurred significant costs to prove their case through fact and expert discovery."

The court has granted preliminary approval of the settlement with a final approval hearing scheduled later in 2021. Kristin L. Bryan "No Happy Hour Here: $7.1 Million Settlement Reached in Alcohol Delivery Data Breach Class Action Litigation, Class Members Anticipated to Get $14 Cash Payout" natlawreview.com (2021).

Commentary

For the sixth year in a row, the amounts in-house legal departments at U.S. organizations spent defending class action lawsuits have increased. In 2020, organizations spent an estimated $2.9 billion on all costs associated with defending class action litigation, including outside counsel fees and e-discovey, according to the 10th annual Class Action Survey by the Carlton Fields law firm.

This amount is expected to continue increasing in large part because of a wave of data breach class action litigation as states pass laws allowing private right of action for a data breach or misuse of data. The Class Action Survey anticipates that 2021 class action defense spending will top three billion dollars. Dan Clark “Corporate Spend on Class Action Defense Litigation Is Expected to Keep Rising” www.law.com (Jun. 10, 2021)

Interestingly, an analysis of the 13 federal class action data breach settlements in 2021 shows that time spent litigating does not impact settlement value. Although conventional wisdom suggests that aggressive litigation would lead to a more favorable settlement, that does not seem to be the case in data breach class action suits, according to the research.

The average per-person all-in settlement amount was fairly consistent, no matter the amount of time spent litigating. In other words, organizations paid a similar per-member settlement amount whether they resolved the case before briefing and discovery or after three years of litigation. Nancy R. Thomas, Zachary Maldonado, and Ani Oganesian “Privacy Litigation 2020 Year in Review: Data Breach Litigation” www.mofo.com (Jan. 4, 2021)

With these statistics in mind, early settlement should be discussed with counsel as a consideration.

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