Undisclosed Incentive Arrangement Meant Conflicts of Interest Predominated under Federal Equitable Principles, And Denial of Fees to All But One Objector Group Sustained Also.
The Ninth Circuit just came out with its decision in Rodriguez/Frailich v. Disner, Case Nos. 10-55309 et al. (9th Cir. Aug. 10, 2012) (published), where they affirmed the denial of class action fees to lead counsel McGuireWoods and denial of fees to all objectors except the Schneider objectors who brought the incentive award conflict issue front and center before the district judge relying upon the conflict when denying fees.
This was a much-publicized case where the federal courts basically denied substantially requested fees to lead class action counsel in a case producing a $49 million settlement for bar review antitrust claims. The problem was that class counsel sought up to $325,000 in incentive awards to class representatives, under a sliding scale formula in a retention agreement, without disclosing same to the class or district judge except at latter stage settlement approval proceedings when ferreted out by a group of objectors. This was found to be a disqualifying conflict of interest in the prior Rodriguez Ninth Circuit opinion.
McGuireWoods’ appeal of the fee denial (except for some expenses and post-disqualifying quantum meruit fees of a small nature overall) was unsuccessful. Because the settlement occurred in a common fund class action context, federal equitable principles–not California state law precedents–governed. This determination sustained the earlier “end result” that the conflict of interest could support an automatic forfeiture of fees to McGuireWoods.
Most of the appealing objectors fared no better, because their work was not found to have materially benefited the class. However, the Schneider objectors had highlighted the incentive award conflict before the district judge, so this group was entitled to an award of fees on remand.