thousands of financial institutions

TJX Data Security Breach Saga Continues: Financial Institution Class Action against TJX Survives on Based on Unfair Competition Claim Predicated on Statements in FTC Complaint against T.J. Maxx / Marshalls’ Parent Company

TJX’s legal saga concerning its massive security breach in 2003 and 2006 lives on. TJX is a large retailer, with over 2000 T.J. Maxx, Marshalls, HomeGoods, Bob’s Stores and A.J. Wright stores in the U.S. and Puerto Rico, During 2003 and 2006, hackers broke into the TJX computer network that handled its credit and debit card, check and return merchandise transactions. The intrusion involved transactions occurring in 2003 and from May-December 2006. TJX learned about the intrusion in mid-December 2006, but delayed making public notification until January 17, 2007. Reports indicated that approximately 45.7 million customer credit and debit cards were affected by the breach.

According to TJX’s most recent 10-Q (May 2, 2009), TJX initially established a reserve of $178.1 million to reflect its losses from the data intrusion. TJX later reduced this reserve by $39.4 million. This means that TJX’s expects its net losses from the data intrusion to total almost $139 million. While TJX will survive, this is truly a massive loss and represents one of the largest computer-related losses experienced by a company.

An expanding of body of federal and state law has imposed two types of data security regulations on companies handling consumer financial transactions: (i) a duty to employ reasonable security measures, and (ii) a duty to notify consumers when a breach of security has occurred.

After TJX announced its data security breach, it was hit with a lengthy list of legal actions. These included: (i) a regulatory complaint by the FTC; (ii) claims by the credit card companies to recover tens of millions in fraud losses; (iii) regulatory actions by over 40 state attorneys general; (iv) several consumer class actions; and (v) a class action on behalf of thousands of banks that had lost money as a result of the breach. All but one of these major legal actions appear to have been resolved.

The FTC Complaint was resolved in July 29, 2008 with the entry of a consent order requiring TJX to install and maintain a “comprehensive information security program to protect the security, confidentiality, and integrity of personal information collected from customers.” TJX is also required to provide initial and biennial audits affirming the quality of this system for the next 20 years. (Fn1) The State Attorney General actions were settled on June 22, 2009 with another consent decree requiring TJX to maintain a “comprehensive information security program.” TJX also agreed to comply with state breach notification laws and to pay the states $9.75 million.

The credit card company claims were settled for an amount estimated to be at least $24 million, but possibly much more. The consumer class action was settled in early 2008 in consumer class action dollars: including (i) the choice of a $60 gift certificate or $30 in cash, (ii) three years of credit monitoring from Equifax, (iii) the replacement cost of a drivers license and(iv) the amount of any actual, unreimbursed damages. Plus, TJX agreed that all its stores would hold a one-time Special Event (a sale) in which prices at its stores would be reduced by 15%. The plaintiffs’ attorneys received $6.5 million in attorneys fees, as well. (Fn2)

The major piece of litigation that remains is the financial institution class action. (Fn3) The suit is brought on behalf of “thousands of financial institutions” who apparently suffered losses too small to bring individual actions. So if the court refused to certify the plaintiffs as a class action, their claims would likely go away.