Ninth Circuit Strikes $45 Million Settlement Due To Standard $5,000 Payments to Class Reps

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In a ruling likely to be as unpopular with defendants wishing to settle class actions as with the plaintiffs’ bar, the Ninth Circuit has found fault with modest $5,000 incentive payments to the four named plaintiffs/class representatives in a class action alleging that credit agencies erroneously included debts discharged through bankruptcy in the settling class members’ credit reports. See Radcliffe v. Experian Info. Solutions, Inc., No. 11-56376 (9th Cir. Apr. 22, 2013) (slip opinion available here). Despite the common and widely-approved practice of providing service payments to class representatives beyond what they are entitled to as class members (in recognition of their time and effort spent being deposed, assisting with written discovery, etc.), the Ninth Circuit reasoned that the $5,000 payments created a conflict of interest because they “significantly exceeded in amount what absent class members could expect to get upon settlement approval.” Slip op. at 9. Consequently, after nearly eight years of litigation, the three-judge panel altogether threw out a $45 million settlement among the three major credit-reporting agencies and class members whose credit reports contained discharged debts.

The parties negotiated a settlement that reflected the various circumstances of the 15,000 class members and the different damages resulting therefrom. Specifically, class members denied employment as a result of the erroneous credit reports would receive $750; those denied a mortgage or housing rental would receive $500; and those denied an auto loan, $150. Slip op. at 11. Even those class members who suffered no adverse consequences at all would receive a nominal $26 payment. Slip op. at 11-12. The settlement further provided that the class representatives, like the settling defendants, would not object to the negotiated payment schedule. Slip op. at 18. It was the provision whereby the class representatives would not object to the payments that the Ninth Circuit took issue with, as the panel reasoned that the class representatives would have a financial disincentive to push their lawyers to attempt to negotiate greater payments to the settling class members. See slip op. at 18-19.

Seemingly lost on the panel was the fact that the class representatives had already championed their fellow class members’ interests in negotiations that resulted in payments tailored to the consequences resulting from the defective credit reports. See slip op. at 11-12. Indeed, even those class members who suffered no adverse consequences at all (more than 750,000 of them) would receive $26 “convenience payments.” Slip op. at 12. The panel’s reliance on Staton v. Boeing Co. to support the result is also puzzling. In that case, the 29 class representatives were set to receive a whopping $50,000 each, ten times more than the payments to the Radcliffe class reps.  See Staton v. Boeing Co., 327 F.3d 938, 975 (9th Cir. 2003).