A federal appeals court threw out the $45 million consumer class settlement with three credit reporting agencies accused of issuing bad credit reports against consumers whose debts had been discharged in bankruptcy.
The 9th U.S. Circuit Court of Appeals rejected the deal saying the terms gave large incentive awards to lead plaintiffs with the condition that they support the settlement, a requirement that put them in conflict with the 755,000 other class members.
The lawsuit named Experian Information Solutions Inc., Transunion and Equifax Information Services claiming violation of the Fair Credit Reporting Act.
“Because these circumstances created a patent divergence of interests between the named 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,” wrote Judge Ronald Gould.
The appeals court found a $5,000 incentive award for each named plaintiff to be disproportionately large.
In addition, visiting Judge Sam Haddon of Montana would have gone farther. He would have disqualified class lawyers from participation in any fee award. He said “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.”
The lawsuit grew out of complaints from bankrupt consumers that credit reporting agencies had issued consumer credit reports with negative entries for debts already discharged in bankruptcy, essentially saying plaintiffs were behind in payments for debts that had been extinguished by the bankruptcy court.
The three companies agreed in February 2009 to pay $15 million each for a common settlement fund totaling $45 million. From that the cost of administration would be deducted and lawyer fees would be paid, but the terms did not spell out the amount of lawyer fees, according to Gould.
The lead plaintiffs would receive $5,000 each, while class members denied jobs as a result of the bad report got $750, those denied a mortgage would get $500 and those denied an auto loan would get $150.
In addition, the fund would first pay any “actual-damage awards” to consumers who could demonstrate actual harm. About 15,000 class members made actual-damage claims.
The deal drew a raft of objectors arguing the class settlement was not fair, reasonable or adequate.
Counsel told a plaintiff that he would “not be entitled to anything” and that he would “jeopardize the $5,000” if he did not support the settlement, Gould wrote.
“The conditional incentive awards removed a critical check on the fairness o the class-action settlement,” Gould said. Judges Haddon and Kim Wardlaw joined in the opinion.
The case goes back to Judge David O. Carter in Los Angeles to reconsider attorney fees and send the lawyers back to the drawing board for a settlement.
Among the firms listed as plaintiff firms were Boies, Schiller & Flexner, Lieff Cabraser Heimann & Bernstein, National Consumer Law Center and others. Among objectors were John W. Davis Law Offices, Public Citizen Litigation Group, Steven A. Miller of Denver and Joseph D. Palmer in Solana Beach. All participating firms can be seen here.
Case: Radcliffe v. Experian Info. Solutions, No. 11-56440
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