9th Circuit throws out Fair Credit Reporting Act settlement on ground that incentive-award provision created conflict of interest, rendering class representatives and class lawyers inadequate class representatives

That's today's ruling in Radcliffe v. Experian, No. 11-56376. Here's the court's synopsis of its unanmious opinion:

Several named plaintiffs and objectors appeal the district court’s approval of a class-action settlement. The settlement agreement, like others we have approved in the past, granted incentive awards to the class representatives for their service to the class. But unlike the incentive awards that we have approved before, these awards were conditioned on the class representatives’ support for the settlement. These conditional incentive awards caused the interests of the class representatives to diverge from the interests of the class because the settlement agreement told class representatives that they would not receive incentive awards unless they supported the settlement. Moreover, the conditional incentive awards significantly exceeded in amount what absent class members could expect to get upon settlement approval. Because these circumstances created a patent divergence of interests between the named representatives and the class, we conclude that the class representatives and class counsel did not adequately represent the absent class members, and for this reason the district court should not have approved the class-action settlement.

And Judge Haddon's concurring opinion says this:

I join in the decision to reverse approval of the settlement for the reasons clearly stated in Judge Gould’s well-written opinion. However, class counsels’ actions in orchestrating and advocating the disparate incentive award scenario without any concern for, or even recognition of, the obvious
conflicts presented underscore, in my opinion, that class counsel were singularly committed to doing whatever was expedient to hold together an offer of settlement that might yield, as it did, an allowance of over $16 million in lawyers’ fees. [footnote omitted]

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. Although within the discretion of the district court in the first instance, I conclude that class counsel should be disqualified from participation in any fee award ultimately approved by the district court upon resolution of the case on the merits.