Robert Radcliffe v. Experian Information Solutions , 492 B.R. 668 ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT RADCLIFFE; CHESTER No. 11-56376
CARTER ; MARIA FALCON ; CLIFTON
C. SEALE, III; ARNOLD LOVELL, JR., D.C. No.
Plaintiffs-Appellants, 8:05-cv-01070-
DOC-MLG
CHRISTY DRIVER ; IVONNE
MARTINEZ; KELLY J. PORTER ; LISA
BRISBANE; BRENDA MELENDEZ;
RALPH MICHAEL PORTER ,
Objectors-Appellants,
and
KATHRYN PIKE ; BERTRAM ROBISON ;
ROBERT RANDALL; JOSE
HERNANDEZ,
Plaintiffs,
WALTER ELLINGWOOD , NANCY
SEGARRA ; MARIA L. BORBON ;
MARCIA GREEN ; JIMMY GREEN ;
THOMAS A. CARDER; GLENDA W.
SCHILLECI; STEVEN C. SINGER ;
NAOMI SANDRES,
Objectors,
v.
EXPERIAN INFORMATION SOLUTIONS
INC.; TRANSUNION , LLC; EQUIFAX
2 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
INFORMATION SERVICES LLC,
Defendants-Appellees.
MARIA L. BORBON , No. 11-56387
Objector-Appellant,
D.C. No.
v. 8:05-cv-01070-
DOC-MLG
JOSE HERNANDEZ; KATHRYN PIKE ;
ROBERT RANDALL; BERTRAM
ROBISON ,
Plaintiffs-Appellees,
and
EXPERIAN INFORMATION SOLUTIONS
INC.; TRANSUNION , LLC; EQUIFAX
INFORMATION SERVICES LLC,
Defendants-Appellees.
TERRI N. WHITE, No. 11-56389
Plaintiff,
D.C. No.
JOSE HERNANDEZ; ROBERT 8:05-cv-01070-
RANDALL; BERTRAM ROBISON ; DOC-MLG
KATHRYN PIKE ,
Plaintiffs-Appellees,
and
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 3
EXPERIAN INFORMATION SOLUTIONS
INC.; TRANSUNION , LLC; EQUIFAX
INFORMATION SERVICES LLC,
Defendants-Appellees,
v.
GLENDA W. SCHILLECI; THOMAS A.
CARDER,
Objectors-Appellants.
TERRI N. WHITE, No. 11-56397
Plaintiff,
D.C. No.
JOSE HERNANDEZ; ROBERT 8:05-cv-01070-
RANDALL; BERTRAM ROBISON ; DOC-MLG
KATHRYN PIKE ,
Plaintiffs-Appellees,
and
EXPERIAN INFORMATION SOLUTIONS
INC.; TRANSUNION , LLC; EQUIFAX
INFORMATION SERVICES LLC,
Defendants-Appellees,
v.
CHARLES JUNTIKKA , Esquire,
Objector-Appellant.
4 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
TERRI N. WHITE, No. 11-56400
Plaintiff,
D.C. No.
JOSE HERNANDEZ; ROBERT 8:05-cv-01070-
RANDALL; BERTRAM ROBISON ; DOC-MLG
KATHRYN PIKE ,
Plaintiffs-Appellees,
and
EXPERIAN INFORMATION SOLUTIONS
INC.; TRANSUNION , LLC; EQUIFAX
INFORMATION SERVICES LLC,
Defendants-Appellees,
v.
STEVEN C. SIGNER ,
Objector-Appellant.
ROBERT RADCLIFFE; CHESTER No. 11-56440
CARTER ; ARNOLD LOVELL, JR.;
MARIA FALCON ; CLIFTON C. SEALE, D.C. No.
III; JOSE HERNANDEZ; ROBERT 8:05-cv-01070-
RANDALL; BERTRAM ROBISON ; DOC-MLG
KATHRYN PIKE ,
Plaintiffs-Appellees,
and
EXPERIAN INFORMATION
SOLUTIONS, INC.; TRANSUNION ,
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 5
LLC; EQUIFAX INFORMATION
SERVICES LLC,
Defendants-Appellees,
v.
WALTER ELLINGWOOD ,
Objector-Appellant.
TERRI N. WHITE, No. 11-56482
Plaintiff,
D.C. No.
ROBERT RADCLIFFE; CHESTER 8:05-cv-01070-
CARTER ; ARNOLD LOVELL, JR.; JOSE DOC-MLG
HERNANDEZ; CLIFTON C. SEALE, III;
MARIA FALCON ; ROBERT RANDALL;
BERTRAM ROBISON ; KATHRYN PIKE , ORDER AND
Plaintiffs-Appellees, AMENDED
OPINION
and
EXPERIAN INFORMATION
SOLUTIONS, INC.; TRANSUNION ,
LLC; EQUIFAX INFORMATION
SERVICES LLC,
Defendants-Appellees,
v.
MARCIA GREEN ; JIMMY GREEN ,
Objectors-Appellants.
6 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted
March 4, 2013—Pasadena, California
Filed April 22, 2013
Amended May 2, 2013
Before: Kim McLane Wardlaw and Ronald M. Gould,
Circuit Judges, and Sam E. Haddon, District Judge.*
Order;
Opinion by Judge Gould;
Concurrence by Judge Haddon
SUMMARY**
Class Action Settlement
The panel reversed the district court’s approval of the
settlement of a class action against credit reporting agencies
under the Fair Credit Reporting Act because the class
representatives and class counsel did not adequately represent
absent class members.
*
The Honorable Sam E. Haddon, District Judge for the U.S. District
Court for the District of Montana, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 7
The panel concluded that the settlement agreement
created a divergence of interests between the named
representatives and the class where incentive awards were
conditioned on the class representatives’ support for the
settlement and significantly exceeded in amount what absent
class members could expect to get upon settlement approval.
Concurring, District Judge Haddon joined in Judge
Gould’s opinion but would disqualify class counsel from
participation in any fee award ultimately approved by the
district court upon resolution of the case on the merits.
COUNSEL
George F. Carpinello (argued) and Adam R. Shaw, Boies,
Schiller & Flexner LLP, Albany, New York; Daniel Wolf,
Daniel Wolf Law Offices, Washington, D.C.; Charles
Juntikka, Charles Juntikka & Associates LLP, New York,
New York, for Plaintiffs-Appellants Robert Radcliffe,
Chester Carter, Maria Falcon, Clifton C. Seale, III, and
Arnold E. Lovell and Objectors-Appellants Christy Driver,
Ivonne Martinez, Kelly J. Porter, Lisa Brisbane, Brenda
Melendez, and Ralph Michael Porter.
Steven A. Miller, Steven A. Miller, PC, Denver, Colorado,
for Objector-Appellant Steven C. Singer.
Joseph Darrell Palmer, Darrell Palmer Law Offices, Solana
Beach, California, for Objector-Appellant Maria L. Borbon.
8 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
Charles M. Thompson, Charles M. Thompson, PC,
Birmingham, Alabama; R. Stephen Griffis, R. Stephen Griffis
Law Offices, Hoover, Alabama, for Objectors-Appellants
Thomas A. Carder and Glenda Schilleci.
John William Davis, John W. Davis Law Offices, San Diego,
California; Steven F. Helfand, Helfand Law Offices, San
Francisco, California, for Objector-Appellant Walter
Ellingwood.
C. Benjamin Nutley and James Garrett Kendrick, Kendrick &
Nutley, Pasadena, California, for Objectors-Appellants
Marcia Green and Jimmy Green.
Gregory A. Beck and Scott L. Nelson, Public Citizen
Litigation Group, Washington, D.C., for Appellant Charles
Juntikka.
Michael A. Caddell (argued) and Cynthia Chapman, Caddell
& Chapman, Houston, Texas; Michael W. Sobol, Lieff
Cabraser Heimann & Bernstein LLP, San Francisco,
California; Stuart T. Rossman and Charles M. Delbaum,
National Consumer Law Center, Boston, Massachusetts;
Leonard A. Bennett and Matthew Erausquin, Consumer
Litigation Associates, P.C., Newport News, Virginia; Lee A.
Sherman, Callahan, Thompson, Sherman & Caudill, LLP,
Irvine, California; Mitchell A. Toups, Weller, Green, Toups
& Terrell, L.L.P., Beaumont, Texas, for Plaintiffs-Appellees.
Daniel J. McLoon (argued) and Michael G. Morgan, Jones
Day, Los Angeles, California, for Defendant-Appellee
Experian Information Solutions, Inc.
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 9
Cindy D. Hanson, Kilpatrick Townsend & Stockton LLP,
Atlanta, Georgia, for Defendant-Appellee Equifax
Information Services LLC.
Julia B. Strickland, Stephen J. Newman, Brian C. Frontino,
and Catherine Huang, Stroock & Stroock & Lavan LLP, Los
Angeles, California, for Defendant-Appellee TransUnion
LLC.
ORDER
The opinion filed on April 22, 2013, and published at
__ F.3d __, 2013 WL 1715422, is amended as follows:
At slip opinion page 23, lines 17–19, replace with the following:
Conflicted representation provides an
independent ground for reversing the
settlement. Cf. id. (citing Fed. R. Civ. P.
23(a)(4), (g)(4)). Because we reverse the
settlement, we must also reverse the awards of
attorneys’ fees and costs. See In re Bluetooth,
654 F.3d at 940. Additionally, we reverse the
awards because the district court abused its
discretion by not considering “whether class
counsel has properly discharged its duty of
loyalty to absent class members” in its award
10 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
of attorneys’ fees and costs.5 Cf. Rodriguez II,
688 F.3d at 655.
The text of footnote 5 is unchanged.
At slip opinion page 23, line 24 to page 24, line 2, replace
with the following:
On remand, the district court should
determine when the conflict arose and if the
conflict continues under any future settlement
agreement. Should the district court approve
such an agreement, it may then exercise its
discretion in deciding whether, and to what
extent, class counsel are entitled to fees under
the common-fund doctrine.6 See Rodriguez II,
688 F.3d at 657; Rodriguez I, 563 F.3d at
967–68.
The call number for footnote 6 should be moved to follow
, as shown above.
At slip opinion page 24, footnote 6, replace the text of the
footnote with the following:
Because we reverse the settlement and the
awards of fees and costs based on the
conditional incentive awards, we do not reach
the issue of whether the subset of class
counsel who brought the Acosta and Pike
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 11
suits, which were consolidated with this case,
faced an independent conflict of interest
because of the fee-sharing agreement they
executed with the rest of class counsel. The
district court should revisit that issue in light
of our holding.
An amended opinion is filed concurrently with this order.
In light of these amendments, any petition for panel
rehearing or rehearing en banc shall be filed within fourteen
days from the date of this order.
IT IS SO ORDERED.
OPINION
GOULD, Circuit Judge:
Several named plaintiffs and objectors appeal the district
court’s approval of a class-action settlement. The settlement
agreement, like others we have approved in the past, granted
incentive awards to the class representatives for their service
to the class. But unlike the incentive awards that we have
approved before, these awards were conditioned on the class
representatives’ support for the settlement. These conditional
incentive awards caused the interests of the class
representatives to diverge from the interests of the class
because the settlement agreement told class representatives
that they would not receive incentive awards unless they
supported the settlement. Moreover, the conditional incentive
awards significantly exceeded in amount what absent class
12 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
members could expect to get upon settlement approval.
Because these circumstances created a patent divergence of
interests between the named representatives and the class, we
conclude that the class representatives and class counsel did
not adequately represent the absent class members, and for
this reason the district court should not have approved the
class-action settlement. We have jurisdiction under 28 U.S.C.
§ 1291, and we reverse the district court’s approval of the
settlement.
I
The plaintiffs below—consumers who have been through
bankruptcy—allege that Defendants Experian Information
Systems, Inc., TransUnion LLC, and Equifax Information
Services LLC issued consumer credit reports with negative
entries for debts already discharged in bankruptcy. In other
words, Defendants allegedly issued credit reports that stated
that the plaintiffs were delinquent in making payments on
debts that had been extinguished in bankruptcy. A smaller
subset of the plaintiffs also contends that the credit-reporting
agencies did not investigate these errors, even after the
plaintiffs had notified the agencies of the errors on their
reports. Defendants allegedly violated the Fair Credit
Reporting Act and its California state-law counterparts
because (1) they did not use “reasonable procedures to assure
maximum possible accuracy” in reporting debts discharged
in bankruptcy, 15 U.S.C. § 1681e(b), and (2) after being
informed of the credit-report errors, Defendants did not
“conduct a reasonable reinvestigation to determine whether
the disputed information [was] inaccurate,” 15 U.S.C.
§ 1681i(a). See also Cal. Civ. Code §§ 1785.14(b), 1785.16;
Cal. Bus. & Prof. Code § 17200.
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 13
The cases began as multiple lawsuits filed in 2005 and
2006.1 The district court consolidated the suits, which raised
similar claims, and the parties began mediation. In April
2008, the parties reached a settlement for injunctive relief,
which the district court approved in August 2008. As part of
that settlement, Defendants agreed to implement procedures
that would presume the discharge of certain pre-bankruptcy
debts. No appellant challenges this settlement.
In February 2009, the parties reached an agreement for
monetary relief. The monetary settlement creates a common
fund of $45 million, $15 million contributed by each of the
three defendants. After the costs of settlement administration
are deducted, the rest of the fund will be distributed as
follows: First, the settlement fund will pay “actual-damage
awards” to class members who demonstrate that they were
actually harmed by Defendants’ conduct. Class members
denied employment will receive $750, those denied a
mortgage or housing rental will receive $500, and those
denied credit or auto loans will receive $150. About 15,000
class members claimed actual-damage awards. Second, the
settlement fund will pay the class representatives and class
counsel for their service in prosecuting the suit. The
agreement provides for incentive awards:
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
1
The procedural history of the litigation is complex but not relevant for
our purposes because we reach only one issue raised in this consolidated
appeal— the effect of the conditional incentive awards to class
representatives.
14 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
Plaintiffs serving as class representatives in
support of the Settlement, and each such
award not to exceed $5,000.00.
The agreement also states that class counsel should petition
the court for an award of attorneys’ fees and costs, to be paid
out of the monetary-settlement fund. The agreement does not
specify the amount of such fees and costs. Third, the
remainder of the fund will be distributed to the rest of the
class as “convenience awards.” Claimants simply need to
attest that they qualify as class members to receive
convenience awards. Approximately 755,000 class members
submitted these claims. Each claimant will receive about
$26.
The court preliminarily approved the settlement and
provisionally certified the settlement class on May 7, 2009.
After two rounds of notice to the class, the district court held
a series of fairness hearings on the settlement. Several named
plaintiffs—formerly class representatives—and objectors
(collectively “Objecting Plaintiffs”) challenged the
settlement. The district court considered but rejected their
objections and found that the settlement was fair, reasonable,
and adequate. The court issued an order granting final
approval of the monetary-relief settlement on July 15, 2011.
White v. Experian Info. Solutions, Inc., 803 F. Supp. 2d 1086(C.D. Cal. 2011). The court also awarded attorneys’ fees and
costs to class counsel. Objecting Plaintiffs appealed.
On appeal, Objecting Plaintiffs give several arguments as
to why the settlement was not fair, reasonable, and adequate.
But we only reach the issue of whether class representatives
and class counsel are adequate where the settlement
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 15
agreement conditions payment of incentive awards on the
class representatives’ support for the settlement.
II
We review the district court’s approval of a class-action
settlement for abuse of discretion. Rodriguez v. W. Pub.
Corp. (Rodriguez I), 563 F.3d 948 (9th Cir. 2009). Under
abuse-of-discretion review we “must affirm unless the district
court applied the wrong legal standard or its findings of fact
were illogical, implausible, or without support in the record.”
Rodriguez v. Disner (Rodriguez II), 688 F.3d 645, 653 (9th
Cir. 2012) (citing United States v. Hinkson, 585 F.3d 1247,
1262 (9th Cir. 2009) (en banc)).
III
Objecting Plaintiffs contend that the settlement
agreement, which provides for incentive awards to named
plaintiffs “in support of the [s]ettlement,” created a conflict
of interest between the class representatives and the class.
Objecting Plaintiffs also assert that, as a result of this conflict,
class counsel engaged in conflicted representation by
continuing to represent the settling class representatives
(“Settling Plaintiffs” or “class representatives”) and the class
at large after the two groups developed divergent interests.
Objecting Plaintiffs thus contend that the class representatives
and class counsel were inadequate to represent the absent
class members. See Fed. R. Civ. P. 23(a)(4), 23(g)(1)(B).
Upon review of the record and reflection on our precedents,
we agree.
16 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
A
Incentive awards are payments to class representatives for
their service to the class in bringing the lawsuit. See
Rodriguez I, 563 F.3d at 958–59; see also 2 McLaughlin on
Class Actions § 6:28 (9th ed. 2012). In cases where the class
receives a monetary settlement, the awards are often taken
from the class’s recovery. See id. Although we have
approved incentive awards for class representatives in some
cases, we have told district courts to scrutinize carefully the
awards so that they do not undermine the adequacy of the
class representatives. See Staton v. Boeing Co., 327 F.3d 938,
977 (9th Cir. 2003). Settling Plaintiffs misinterpret the scope
of our precedent about incentive awards, so we begin by
reviewing that precedent.
In Staton v. Boeing Company, 327 F.3d at 975–78, we
reversed the district court’s approval of a class-action
settlement because the settlement provided for
disproportionately large payments to class representatives.
The settlement awarded the 29 class representatives up to
$50,000 each. We noted that in some cases incentive awards
may be proper but cautioned that awarding them should not
become routine practice: “[i]f class representatives expect
routinely to receive special awards in addition to their share
of the recovery, they may be tempted to accept suboptimal
settlements at the expense of the class members whose
interests they are appointed to guard.” Id. at 975 (alteration
in original) (quoting Weseley v. Spear, Leeds & Kellogg,
711 F. Supp. 713, 720 (E.D.N.Y. 1989)). The settlement in
Staton magnified the risks associated with incentive awards
because the awards there were much larger than the payments
to individual class members, “eliminat[ing] a critical check
on the fairness of the settlement for the class as a whole.” Id.RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 17
at 977. Where a class representative supports the settlement
and is treated equally by the settlement, “the likelihood that
the settlement is forwarding the class’s interest to the
maximum degree practically possible increases.” Id. But if
“such members of the class are provided with special
‘incentives’ in the settlement agreement, they may be more
concerned with maximizing those incentives than with
judging the adequacy of the settlement as it applies to class
members at large.” Id. We held that the awards in Staton
were so disproportionate to the class’s recovery that the
district court abused its discretion in finding that the
settlement agreement was fair, adequate, and reasonable. Id.
at 978.
In Rodriguez I, we again confronted improper incentive
awards. At the start of the litigation, several class
representatives signed retainer agreements that required class
counsel to request incentive awards that increased on a
sliding scale as the class’s monetary recovery increased.
Rodriguez I, 563 F.3d at 957. The awards maxed out at
$75,000 if the total settlement amount was $10 million or
more. Id. “We expressed disapproval of these incentive
agreements, and stated that [the agreements] ‘created an
unacceptable disconnect between the interests of the
contracting representatives and class counsel, on the one
hand, and members of the class on the other.’” Rodriguez II,
688 F.3d at 651 (quoting Rodriguez I, 563 F.3d at 960). The
named plaintiffs had no incentive to settle for anything other
than monetary relief of $10 million, and they had no incentive
to go to trial and risk their incentive awards, even if going to
trial was best for the class. More than a “typical” incentive
award, the provisions in the retainer agreements “ma[de] the
contracting class representatives’ interests actually different
from the class’s interests.” Rodriguez I, 563 F.3d at 959. The
18 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
class representatives thus did not adequately represent the
class. Rodriguez II, 688 F.3d at 656–67. Moreover, we held
that the retainer agreements “implicate[d] California ethics
rules that prohibit representation of clients with conflicting
interests.” See Rodriguez I, 563 F.3d 948, 960; see also
Rodriguez II, 688 F.3d at 656–60.2
B
As in Staton and Rodriguez I, the incentive awards here
corrupt the settlement by undermining the adequacy of the
class representatives and class counsel. In approving the
settlement agreement, the district court misapprehended the
scope of our prior precedents. We once again reiterate that
district courts must be vigilant in scrutinizing all incentive
awards to determine whether they destroy the adequacy of the
class representatives. The conditional incentive awards in
this settlement run afoul of our precedents by making the
settling class representatives inadequate representatives of the
class.
The settlement agreement explicitly conditions the
incentive awards on the class representatives’ support for the
2
In Rodriguez I, we remanded “for the district court to consider whether
counsel could represent both the class representatives with whom there
was an incentive agreement, and absentee class members, without
affecting the entitlement to fees.” Rodriguez I, 563 F.3d at 968. In
Rodriguez II, the case returned to us after the district court, relying on
Rodriguez I, found “that the incentive agreements gave rise to a conflict
of interest between the class representatives and the other members of the
class that tainted [class counsel’s] representation, and . . . [therefore
denied] attorneys’ fees.” Rodriguez II, 688 F.3d at 652 (internal quotation
marks omitted). W e affirmed. Id. at 960. The district court here did not
have the benefit of our decision in Rodriguez II.
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 19
settlement. This interpretation is clear from the language of
the agreement.3 Settling Plaintiffs contend that the settlement
agreement did not explicitly condition the incentive awards
on support of the settlement but was merely descriptive of
those named representatives who were seeking judicial
approval of the agreement. We disagree that the language is
susceptible to this interpretation. But if there were any doubt,
the conduct and communications of class counsel confirmed
this interpretation. Counsel told a plaintiff below that he
would “not be entitled to anything” and that he would
“jeopardize the $5,000 [he] would receive [under the
settlement]” if he did not support the settlement. Class
counsel also told the district court that they had told other
plaintiffs that they “don’t see a way for people who don’t
support the settlement to receive an incentive award.” On
appeal, Settling Plaintiffs’ argument for an alternative
interpretation is unpersuasive.
With the prospect of receiving $5,000 incentive awards
only if they supported the settlement, Settling Plaintiffs had
very different interests than the rest of the class. Like the
agreements in Rodriguez, the conditional incentive awards
changed the motivations for the class representatives. Instead
of being solely concerned about the adequacy of the
settlement for the absent class members, the class
representatives now had a $5,000 incentive to support the
settlement regardless of its fairness and a promise of no
3
W e must presume that Settling Plaintiffs knew the contents of the
settlement agreement that they supported in the district court. See
Bingham v. Holder, 637 F.3d 1040, 1045 (9th Cir. 2011) (“[A] party who
signs a written contract ‘in the absence of fraud or other wrongful act on
the part of another contracting party, is conclusively presumed to know its
contents and to assent to them.’” (quoting 27 Richard A. Lord, Williston
on Contracts § 70:113 (4th ed. 2009))).
20 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
reward if they opposed the settlement. The conditional
incentive awards removed a critical check on the fairness of
the class-action settlement, which rests on the unbiased
judgment of class representatives similarly situated to absent
class members.
Although the conditional incentive awards themselves are
sufficient to invalidate this settlement, the significant
disparity between the incentive awards and the payments to
the rest of the class members further exacerbated the conflict
of interest caused by the conditional incentive awards. As the
district court below noted, “[c]oncerns over potential
conflicts may be especially pressing where, as here, the
proposed service fees greatly exceed the payments to absent
class members.” White, 803 F. Supp. 2d at 1112. There is a
serious question whether class representatives could be
expected to fairly evaluate whether awards ranging from $26
to $750 is a fair settlement value when they would receive
$5,000 incentive awards. Under the agreement, if the class
representatives had concerns about the settlement’s fairness,
they could either remain silent and accept the $5,000 awards
or object to the settlement and risk getting as little as $26 if
the district court approved the settlement over their
objections. The conditional incentive awards at issue here,
like the disproportionately large awards in Staton, fatally alter
the calculus for the class representatives, pushing them to be
“more concerned with maximizing [their own gain] than with
judging the adequacy of the settlement as it applies to class
members at large.” Staton, 327 F.3d at 977.
The class representatives’ divergent interests, as a result
of the conditional incentive payments, undermined their
ability to “fairly and adequately protect the interests of the
class.” Fed. R. Civ. P. 23(a)(4). This requirement is rooted
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 21
in due-process concerns—“absent class members must be
afforded adequate representation before entry of a judgment
which binds them.” Hanlon v. Chrysler Corp., 150 F.3d
1011, 1020 (9th Cir. 1998).
Adequate representation depends upon “an absence of
antagonism [and] a sharing of interests between
representatives and absentees.” Molski v. Gleich, 318 F.3d
937, 955 (9th Cir. 2003), overruled on other grounds by
Dukes v. Wal–Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010).
Where, as here, the class representatives face significantly
different financial incentives than the rest of the class because
of the conditional incentive awards that are built into the
structure of the settlement, we cannot say that the
representatives are adequate. See Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 627 (1997) (“The settling parties, in
sum, achieved a global compromise with no structural
assurance of fair and adequate representation . . . .”).
Settling Plaintiffs counter this analysis through three
arguments, but we reject each of these arguments. First,
Settling Plaintiffs claim that incentive awards for named
plaintiffs are typical, so any distortion in the interest of
Settling Plaintiffs is common to all class actions. Although
incentive awards may be common, see Rodriguez I, 563 F.3d
at 958, explicitly conditioning incentive awards to named
representatives on their support for the settlement is not at all
typical. Professor William Rubenstein, a class-action expert,
testified before the district court that in his experience such
provisions are “not common” and that his research revealed
“not one” settlement agreement that “contain[ed] a restriction
on an incentive award like the one here that permits incentive
awards be sought only for those representatives ‘in support of
the settlement.’” Brad Seligman, another expert witness,
22 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
testified that he had “reviewed literally hundreds of class
actions settlements” but could “not recall ever seeing a class
settlement that expressly states only that class representatives
who support the settlement are entitled to an incentive
payment.” Thus, we are not confronted with run-of-the-mill
incentive awards, but rather a settlement provision that
weighs on the class representatives’ independent judgment on
whether to support the settlement by calling for the denial of
incentive awards if they do not support it.
Second, Settling Plaintiffs point out that the district
court—not the settlement agreement—determines who
receives incentive awards and in what amount and that
Objecting Plaintiffs could have sought their own incentive
awards from the district court. They therefore contend that
the provision in the settlement agreement is irrelevant. But
this argument misapprehends the nature of the adequacy
inquiry. That Objecting Plaintiffs could have petitioned for
incentive awards is irrelevant to the conflict created by the
settlement agreement. We are concerned about the
destruction of the “shar[ed] . . . interests between the
representatives and absentee[]” class members as a result of
the conditional incentive awards. Rodriguez I, 563 F.3d at
960 (quoting Molski, 318 F.3d at 955). We examine the class
representatives’ incentives based on both the settlement
agreement and the final awards approved by the district court.
Here, our analysis focuses on the agreement. There is a lack
of congruent interests between Settling Plaintiffs and the
class at large because the class representatives would be
expected to support the settlement so that class counsel would
request awards on their behalf. See id. That the award
ultimately must come from the district court is of no moment
because the district court may want to rely on the judgment
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 23
of the class representatives supporting a settlement. See
Staton, 327 F.3d at 977.
Third, Settling Plaintiffs contend that even if the
conditional incentive awards created a potential conflict of
interest with the class, no actual conflict developed. To
support this assertion, Settling Plaintiffs point to their own
testimony that their decisions to support the settlement were
not influenced by the prospect of incentive awards. Again,
Settling Plaintiffs misapprehend our holding in Rodriguez I.
Our inquiry in Rodriguez I was not whether there was an
actual injury to the class in the form of a lower settlement
amount because of the improper incentive-awards
agreements. See Rodriguez I, 563 F.3d at 960; see also
Rodriguez II, 688 F.3d at 658. Rather, the adequacy of the
Rodriguez plaintiffs’ representation was undermined by the
presence of the agreements that created the conflict of
interest. In fact, the settlement in Rodriguez I—$49
million—was much larger than the amount that would
maximize the incentive awards under the incentive-awards
agreements—$10 million. See id. at 956–57. But that did not
change the fact that the incentive agreements themselves
created a conflict of interest by tying the incentive awards to
the settlement amount. That the ultimate settlement amount
was $49 million instead of $10 million did not eliminate the
conflict of interest. The same is true here. The conditional-
incentive-awards provision in the settlement agreement made
the interests of the class representatives actually different
than those of the rest of the class.
In Rodriguez I, after holding that the retainer agreements
created a conflict of interest, we “conclude[d] that the
presence of conflicted representatives was harmless” because
two other class representatives had retainer agreements that
24 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
did not contain the incentive-awards agreements that created
the conflict. Rodriguez I, 563 F.3d at 961. Here, however,
the conflict created by the conditional incentive awards in the
settlement is not harmless. It affected all class
representatives who supported the settlement. We conclude
that the settlement must be reversed because the interests of
class representatives who would get incentive awards
diverged from the interests of the absent class members. We
reverse the district court’s approval of the monetary-relief
settlement.4 Because we reverse the settlement, we also
reverse the awards of attorneys’ fees and costs. See In re
Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 940 (9th
Cir. 2011).
C
Having determined that Settling Plaintiffs did not
adequately represent the class, we now turn to the question of
whether the class representatives’ lack of adequacy—based
on the conditional incentive awards—also made class counsel
inadequate to represent the class. We hold that it did.
Class counsel has a fiduciary duty to the class as a whole
“and it includes reporting potential conflict issues” to the
district court. Rodriguez I, 563 F.3d at 948; see also id. at
968 (“The responsibility of class counsel to absent class
members whose control over their attorneys is limited does
4
Because we reverse based on the conditional incentive awards, we
express no opinion on the reasonableness and adequacy of the $45 million
settlement presented.
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 25
not permit even the appearance of divided loyalties of
counsel.” (quoting Kayes v. Pac. Lumber Co., 51 F.3d 1449,
1465 (9th Cir. 1995))). Under the district court’s local rules,
California law governs whether an ethical violation has
occurred. See C.D. Cal. R. 83–3.1.2; see also Rodriguez II,
688 F.3d at 656. California Rule of Professional Conduct
3–310(C) prohibits the representation of clients with actual or
potential conflicts of interest absent an express waiver. See
Rodriguez II, 688 F.3d at 656–57 (collecting California
cases); see also Image Tech. Serv., Inc. v. Eastman Kodak
Co., 136 F.3d 1354, 1358 (9th Cir. 1998) (noting that
“[s]imultaneous representation of clients with conflicting
interests (and without informed written consent) is an
automatic ethics violation in California”); Flatt v. Superior
Court, 885 P.2d 950, 955 (Cal. 1994).
As soon as the conditional-incentive-awards provision
divorced the interests of the class representatives from those
of the absent class members, class counsel was
simultaneously representing clients with conflicting interests.
See Rodriguez I, 563 F.3d at 959; Rodriguez II, 688 F.3d at
656. Class counsel made no attempt to obtain a waiver for
the conflict or to contain the conflict by alerting the district
court. See Rodriguez I, 563 F.3d at 959. Instead, class
counsel took the position that a conflict did not even exist.
Moreover, the conditional-incentive-awards provision
affected all settling class counsel. Cf. Rodriguez I, 563 F.3d
at 961. Class counsel thus was not adequate and could not
settle the case on behalf of the absent class members.
Conflicted representation provides an independent ground for
reversing the settlement. Cf. id. (citing Fed. R. Civ. P.
23(a)(4), (g)(4)). Because we reverse the settlement, we must
also reverse the awards of attorneys’ fees and costs. See In re
Bluetooth, 654 F.3d at 940. Additionally, we reverse the
26 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
awards because the district court abused its discretion by not
considering “whether class counsel has properly discharged
its duty of loyalty to absent class members” in its award of
attorneys’ fees and costs.5 Cf. Rodriguez II, 688 F.3d at 655.
But this case is different than Rodriguez I and Rodriguez
II because the conditional incentive awards at issue here did
not create a conflict “from day one.” Rodriguez I, 563 F.3d
at 959. Rather, the conflict developed late in the course of
representation. On remand, the district court should
determine when the conflict arose and if the conflict
continues under any future settlement agreement. Should the
district court approve such an agreement, it may then exercise
its discretion in deciding whether, and to what extent, class
counsel are entitled to fees under the common-fund doctrine.6
See Rodriguez II, 688 F.3d at 657; Rodriguez I, 563 F.3d at967–68.
IV
In sum, we hold that the district court abused its
discretion in approving this settlement where the class
representatives and class counsel did not adequately represent
5
To be clear, we reverse both awards of attorneys’ fees and both awards
of costs.
6
Because we reverse the settlement and the awards of fees and costs
based on the conditional incentive awards, we do not reach the issue of
whether the subset of class counsel who brought the Acosta and Pike suits,
which were consolidated with this case, faced an independent conflict of
interest because of the fee-sharing agreement they executed with the rest
of class counsel. The district court should revisit that issue in light of our
holding.
RADCLIFFE V . EXPERIAN INFO . SOLUTIONS 27
the interests of the class. We must be vigilant in guarding
against conflicts of interest in class-action settlements
because of the “unique due process concerns for absent class
members” who are bound by the court’s judgments. In re
Bluetooth, 654 F.3d at 946 (quoting Hanlon, 150 F.3d at
1026). And where, as here, the “settlement agreement is
negotiated prior to formal class certification . . . , there is an
even greater potential for a breach of fiduciary duty owed the
class.” Id. “Accordingly, such agreements must withstand an
even higher level of scrutiny for evidence of collusion or
other conflicts of interest than is ordinarily required under
Rule 23(e) before securing the court’s approval as fair.” Id.We hold that the settlement at issue here cannot withstand
this scrutiny, and it was therefore an abuse of discretion for
the district court to approve the settlement.7 Although this
case does not go back to square one, the settlement cannot be
approved. The case is remanded for further proceedings
consistent with this opinion.
REVERSED AND REMANDED.
7
Because we reverse the settlement and the award of attorneys’ fees and
costs on account of the conditional incentive awards, we do not reach the
other arguments raised in this appeal. In particular, we decline to review
Attorney-Appellant Charles Juntikka’s challenge to the district court’s
order restricting his ability to contact his former clients. The issue is moot
because we reverse the order approving the settlement that Juntikka
opposes and the issue may not arise again on remand. If it does, the
district court should address whether any new restrictions on speech
comply with Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981), and Domingo
v. New England Fish Co., 727 F.2d 1429, 1439–42, modified, 742 F.2d
520 (9th Cir. 1984).
28 RADCLIFFE V . EXPERIAN INFO . SOLUTIONS
HADDON, District Judge, concurring:
I join in the decision to reverse approval of the settlement
for the reasons clearly stated in Judge Gould’s well-written
opinion. However, class counsels’ actions in orchestrating
and advocating the disparate incentive award scenario
without any concern for, or even recognition of, the obvious
conflicts presented underscore, in my opinion, that class
counsel were singularly committed to doing whatever was
expedient to hold together an offer of settlement that might
yield, as it did, an allowance of over $16 million in lawyers’
fees.1
Such adherence to self-interest, coupled with the obvious
fundamental disregard of responsibilities to all class
members—members who had little or no real voice or
influence in the process—should not find favor or be
rewarded at any level. Although within the discretion of the
district court in the first instance, I conclude that class
counsel should be disqualified from participation in any fee
award ultimately approved by the district court upon
resolution of the case on the merits.
1
The total fees approved were $16,747,147.68.