Tuesday, April 23, 2013
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Panel Tosses Class-Action Settlement Involving Credit Reports
By KENNETH OFGANG, Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday overturned a lower court’s approval of a $45 million class action settlement involving the three major credit-reporting agencies.
The court said the agreement was unfair because $5,000 incentive awards for class representatives were improperly conditioned on their support for the settlement and were excessive relative to what many class members would receive. The settlement reportedly would have been the second-largest ever in a case involving the federal Fair Credit Reporting Act.
The plaintiffs, individuals who had gone through bankruptcy, sued Equifax Information Services LLC, Experian Information Systems Inc and TransUnion LLC in 2005 and 2006—the cases were consolidated in the trial court—claiming violations of the FCRA and California law. The complaints alleged the defendants had illegally reported debts after they were discharged, in many instances preventing the debtors from obtaining loans, housing rentals, or jobs.
A settlement on non-monetary relief, under which the defendants agreed to new procedures that would presume the discharge of certain pre-bankruptcy debts, was reached in 2008 and drew no objections. The monetary settlement that was the subject of yesterday’s ruling was reached in 2009.
$45 Million Settlement Fund
Under the agreement, the three defendants would have contributed $45 million to a settlement fund. After payment of expenses—including more than $16.7 million in attorney fees—and incentive awards, any absent class members claiming actual damages would receive between $150 and $750 each depending on the type of damage they were claiming, while those who submitted claim forms but did not allege actual damages would receive “convenience” payments.
About 15,000 claims for actual damages were received. More than 750,000 people claimed the convenience payments, which would have come to $26 each.
U.S. District Judge David O. Carter of the Central District of California found the settlement to be fair and adequate.
But Judge Ronald Gould, writing for the Ninth Circuit, distinguished the agreement from class-action settlements with incentive awards that the court had approved in the past.
The requirement that plaintiffs support approval of the settlement in order to collect the enhanced payments created a “patent divergence of interests” between the representatives and the represented, the judge said.
“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,” Gould said.
Conflict of Interest
The potential awards also created a conflict of interest for class counsel, the judge wrote, because they “divorced the interests of the class representatives from those of the absent class members.”
The case was sent back to the District Court for further proceedings.
In a footnote, Gould said the attorneys should not receive fees for representation during the period in which the conflict of interest existed. But the district judge may award fees for “any non-conflicted representation that created a benefit for the class.”
Judge Kim M. Wardlaw concurred in the opinion.
U.S. District Judge Sam Haddon of Montana, sitting by designation, concurred in the reversal but argued in a separate opinion that class counsel should get no fees at all.
Their “actions in orchestrating and advocating the disparate incentive award scenario without any concern for, or even recognition of, the obvious conflicts presented underscore…that class counsel were singularly committed to doing whatever was expedient” in order to get a huge fee award, Haddon said.
“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,” Haddon wrote.
The case is Radcliffe v. Experian Information Systems Inc., 11-56376.
Copyright 2013, Metropolitan News Company