In re Morgan Stanley Data Security Litigation

Docket number: 20-cv-5914-PAE (S.D.N.Y.)

The Hamilton Lincoln Law Institute successfully represented an objector challenging the attorneys’ fee request in a class action against Morgan Stanley arising from data security incidents dating back to 2016 and 2019. The plaintiffs’ attorneys requested over 33% of the settlement fund—amounting to more than $20.25 million. This amount is above the 25% benchmark award even though the settlement relief is primarily in the form of fraud insurance services that are of little value to the class. Many other data breach class actions have offered class members the option to select cash rather than fraud protection services, and many class members choose this option because the vast majority of them already have fraud protection from other sources and cash is simply more valuable. The settlement did not provide such an option here, yet the plaintiffs’ attorneys sought fees as though the value of the fraud insurance services were equivalent to cash.

Objector Robina Frank argued that the Court should not award attorneys’ fees until the parties disclose to the Court the number of class members who actually claim fraud insurance services or, in the alternative, should award a much lower percentage to account for the lower value of the settlement relief and should ensure that the lodestar multiplier does not exceed the mean as determined through empirical data.

The underlying Morgan Stanley litigation alleges that in 2016 and 2019 Morgan Stanley took actions that resulted in the compromise of confidential personally identifiable and financial information of over 14 million of its current and former clients. As a result of this compromise of information, Morgan Stanley entered into a consent order with the Office of the Comptroller of Currency in October 2020 and paid a civil penalty of $60 million.

In 2020, plaintiffs filed suit against Morgan Stanley. They alleged state law causes of action such as negligence, breach of fiduciary duty, unjust enrichment and consumer law violations. The parties reached a settlement that allowed class members to register for financial fraud insurance services and to request reimbursement of actual costs traceable to the data security incidents, with the settlement fund capped at $60 million.

Plaintiffs’ attorneys requested attorneys’ fees and expenses of over $20.25 million, equal to more than 33% of the settlement fund. This request would be too high under the Court’s 25% benchmark even for a cash settlement. Here, the primary settlement relief is fraud insurance services for events that occurred 3-6 years ago, offered to a class where over 90% of the members already have had related services made available to them in other data breach settlements, and with no option for class members to elect cash as an alternative. Because the settlement includes non-cash relief that is of limited value, Ms. Frank asks the Court to award fees only on the actual value of relief claimed by the class or to reduce the fee percentage to 10-15% to account for the less valuable relief.

A fairness hearing occurred August 5, 2022. The district court approved the settlement, but awarded fees of only $13.64 million, more in line with Frank’s objection, and a reduction of $6.36 million from plaintiffs’ request. The additional money will increase the fund used to pay class members’ out-of-pocket expenses and for additional fraud protection services.

Case Documents