Settling Ashley Madison Data Breach Lawsuit Was Likely 'Inevitable'
ALM Media
Updated
It does not come as a surprise to academic experts in legal strategy that the parent company of the Ashley Madison dating website wanted to settle the well-publicized case. In fact, William H.J. Hubbard, a professor at the University of Chicago Law School, said the "settlement was probably inevitable in this case."
"In a highly publicized, class action lawsuit involving sensitive information for all parties involved, settlement is basically a foregone conclusion," Hubbard told Legaltech News. "The defendant wants to settle because the data breach was a PR nightmare, and it wants to put the fiasco in the rearview mirror. The plaintiffs and class members presumably want as much confidentiality as possible, too, for obvious reasons. And the lawyers representing the class, who wield tremendous discretion and influence, given that the class is a diffuse group of individuals whose stakes are small relative to the case as a whole, want to make sure they get paid, and a class action settlement will inevitably provide for that."
The settlement relates to the class action lawsuit filed following a data breach and release of personal information from customers of Ashley Madison, an online dating website owned and operated by Ruby Life Inc.
As part of the proposed settlement of the pending case in Missouri, Ruby "denies any wrongdoing" and "the parties have agreed to the proposed settlement in order to avoid the uncertainty, expense, and inconvenience associated with continued litigation, and believe that the proposed settlement agreement is in the best interest of Ruby and its customers," the company said in a statement.
"A major benefit of settlement is that it keeps sensitive or embarrassing information that otherwise might be produced in court documents or at trial from becoming part of the public record," Hubbard explained. "Even when the embarrassing information is already in the public domain, ongoing litigation can have the effect of keeping an event in the news, thereby magnifying concerns about the rehashing of embarrassing information."
Hubbard said context is important in the decision to settle. "For example, preserving a reputation for toughness or for standing on principle may mean refusing to settle, especially in well-publicized cases. But when embarrassing material is on the line, or when a lawsuit arises out of a public relations fiasco for the defendant, as in this case, I would say settlement becomes almost imperative," Hubbard said.
Jon Mills, director of the Center for Governmental Responsibility at the University of Florida's Levin College of Law who is also counsel at Boies Schiller Flexner, added the case is "obviously very high profile" and there was a "lot of incentive to settle." By settling, it also may help prevent more "public display" of negligence, he said.
Noting the amount announced in the settlement, $11.2 million, "There may be companies that would consider that a bargain," Mills said.
When asked about the presence of embarrassing information in this case, Andrew Pollis, a professor at Case Western Reserve University School of Law, said, "In most cases of cybersecurity breach, publication of consumers' financial data [e.g., credit-card information] is more of an annoyance than an embarrassment. But most juries would be very angry at the company that allowed the breach to occur and would be predisposed to find in favor of the consumers and against the company that allowed the breach to occur.
"In this case, there is an added level of potential embarrassment given the nature of Ashley Madison's business. But some jurors might be less sympathetic to the class members given their willingness to pay for Ashley Madison's services, so that's actually a risk that might have cut both ways or even tipped against the plaintiffs. It really would depend a lot on jury selection, which is always a crapshoot. My sense is that no one wanted to run the risk of what a jury would do with a case like this," Pollis said.
When considering whether to settle, at a basic level, parties "evaluate the cost of a loss and the chances of a loss. The product of those two variables is one way to land on a settlement that makes economic sense, at least from a purely risk-management standpoint," Pollis said. "But most settlements involve more complex dynamics, including attorney fees, business disruption, adverse publicity/loss of goodwill, risk tolerance, and [depending on the nature of the case and the litigant] emotional factors."
Adam Hoeflich, a professor at Northwestern School of Law and a partner at Bartlit Beck Herman Palenchar & Scott, said Ruby "likely understood that even if they had valid arguments against class certification and strong defenses regarding liability, they had genuine risk from litigation given that customer data had been revealed. While a damages settlement creates the potential for opt outs, it also creates a meaningful step toward closure. It may also be that Ruby felt that they received a fair settlement and a reach chance for closure given that many of the plaintiffs would not have felt comfortable coming forward during litigation about the actual harm that they suffered."
Hubbard further confirmed that the Ashley Madison case is different from something like the LabMD case, which involved a regulatory enforcement action. "The government in an enforcement action may not be as interested in a monetary settlement in the same way that a class of plaintiffs would be," Hubbard said.
