Class Action: Class Counsel Disqualified Where Class Representatives Conditioned Settlement Approval Upon Receipt of Incentive Awards

 

Up For Grabs: $16 Million Class Counsel Fee Award in the Balance on Remand.

     The Ninth Circuit Court of Appeals, in the next case, sent a strong message to class action attorneys that you cannot structure class representatives’ incentive awards conditioned on their support for the settlement, especially where the incentive awards exceeded significantly what absent class members would get. However, Radcliffe v. Experian Info. Solutions, Nos. 11-56376 et al. (9th Cir. Apr. 22, 2013) (published) has an even more ominous repercussion for class counsel in this situation.

     Radcliffe involved an approved class action settlement where class representatives obtained $5,000 incentive awards on condition that they support the settlement, which contrasted with $150-$750 amounts which would have been received by absent class members. The trial court finally approved the settlement, awarding class counsel fees of $16,747,147.68.

     Well, all of this went POOF! on appeal. The principal bases were (1) the conflict of interest based upon the incentive awards, and (2) representatives’ acquiescence to a settlement for absent class members garnering far less in the scheme of things than the representatives themselves–a disparity that compromised the representatives‘ ability to fairly represent the entire class.

     But here is the rub for class counsel. Although the conflict of interest developed late in the course of representation (at the settlement stage), the appellate court remanded to the district court to decide how this impacted the $16 million-plus fee award. In a footnote, the panel observed that no fees recovery would be allowed for attorneys‘ legal efforts during their conflicted class representation, although it could not be said that some pre-conflict efforts were not entitled to compensation under the common fund doctrine. However, District Judge Haddon (sitting by designation), was more emphatic in his decision-making: he believed that class counsel should be disqualified from any participation in a fee award ultimately approved by the district court. Ouch!

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