- Settlement of Class Action Approved Despite Multiple Client Conflicts
- June 25, 2009
- Law Firm: Hinshaw & Culbertson LLP - Chicago Office
Rodriguez v. West Publishing Corp., 563 F.3d 948 (9th Cir. 2009)
The Ninth Circuit approved a class action settlement despite conflicts between the class and most of the class representatives because some of the representatives were not conflicted.
This class action antitrust suit against West Publishing Corp. (“West”) involved seven class representatives. Five of the seven had incentive agreements with class counsel that were negotiated up front. These agreements created a conflict of interest between these representatives and the class because it created a different risk/reward balance for each group. According to the Ninth Circuit, such awards are to be given at the discretion of the court, not built into the fee agreement. The remaining two class representatives were not conflicted, however, and had separate counsel.
The case settled. When the settlement agreement was presented to the district court for approval, the district court denied the incentive awards for the class representatives but approved the settlement. Several objectors to the settlement then appealed.
The Ninth Circuit affirmed the district court. The issue was whether the conflict of interest between class representatives and the class amounted to inadequate representation of the class. The Ninth Circuit’s holding was based on a fact-specific inquiry. The main fact suggesting adequate representation was the absence of conflicts for the two class representatives who did not have incentives and their independent counsel. Also important for the court was the fact that, according to the mediator of the settlement, class counsel vigorously prosecuted the case. The Ninth Circuit also held that the settlement notice sent to the class for approval was not fatally defective for failing to adequately disclose the conflict. The notice disclosed the settlement awards for the class representatives, thus putting class members on notice of a possible conflict.
Nonetheless, the Ninth Circuit reversed the district court’s ruling on attorney fees. The district court had rejected the objectors’ request for fees on the ground that they did not add anything to the court’s decision to deny the representatives’ incentive awards. According to the Ninth Circuit, this holding was clearly erroneous because, prior to the objectors’ intervention, the district court had not been focused on the incentive agreements. The Ninth Circuit therefore remanded the case for reconsideration of the extent to which the objectors benefitted the class, and directed the district court to award attorney fees accordingly.
Significance of Opinion
This opinion highlights some of the difficulties that can arise from class action conflicts. Although one could contend that the court split hairs by discounting conflicts so long as some of the class representatives are not conflicted, the fact-specific nature of the court’s inquiry leaves future courts with considerable flexibility.