Credit Bureau Settlement Squashed Over Award to Class Reps - U.S. Ninth Circuit
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Credit Bureau Settlement Squashed Over Award to Class Reps

Attorneys have a responsibility to ensure that they don’t represent clients with divergent interests. Class representatives have responsibility to represent their own interests as well as the interests of the other members of the class.

Conditioning a class representative’s award on their approval of the terms of the settlement, therefore would seem to cause a bit of an issue. Will a class representative reject a settlement and risk losing a $5,000 award? What about a situation where the attorneys get $16 million, the class representatives get $5,000 each, and the members of the class get between $26 and $750?

The origin of the dispute were alleged violations of the Fair Credit Reporting Act. Individuals who had declared bankruptcy found pre-bankruptcy delinquencies on their credit reports. The suit alleged that Equifax, TransUnion, and Experian neither used "reasonable procedures to assure maximum possible accuracy" nor did they "conduct a reasonable investigation to determine whether the disputed information [was] accurate."

The case reached two settlements, one for injunctive relief and one for monetary compensation. Though the injunctive relief isn't challenged here, the monetary provisions are.

The settlement agreement provides that:

On or before October 19, 2009, Proposed 23(b)(3) Settlement Class Counsel shall file an application or applications to the Court for an incentive award, to each of the Named Plaintiffs serving as class representatives in support of the Settlement, and each such award not to exceed $5,000.00.

The Ninth Circuit has previously held that disproportionate incentive awards can be acceptable on rare occasions. Class representatives are entitled to increased compensation for their role in the case. However, greatly disproportionate awards, such as the ones seen in Rodriguez I, where the amount of the representatives' awards were conditioned greatly on the amount of the settlement, thereby incentivizing a push for a high settlement without a trial, or the awards seen in Boeing, where the representatives were awarded $50,000 each.

Here, the $5,000 award is made contingent on agreeing with the settlement. If the representative objects on behalf of their constituents in the class, they lose their award. That's an obvious conflict.

The court also vacated the attorneys' fees, though the majority didn't outright bar any attorneys' fees as they did in Rodriguez. In that case, the conflict of interest from representing parties with divergent interests, and the unfair fee arrangement, was present from the outset of the case. Here, it only arose at settlement time. Presumably, the fees earned before the conflict would be awarded per the majority.

Judge Haddon's concurrence agreed that the settlement agreement was unfair due to the incentives provided to the class representatives. He, however, would have wiped out the $16 million in attorneys' fees completely, as he was of the opinion that the "fundamental disregard of responsibilities to all class members ... should not find favor or be rewarded at any level."

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