Rodriguez v. Disner: Ninth Circuit Rules on Fee Award to Counsel Who Entered Into "Incentive Agreements" with Class Representatives

In Rodriguez v. West Publishing Corporation, 563 F.3d 948 (9th Cir. 2009) (discussed here) the Ninth Circuit examined "incentive agreements" between class representatives and class counsel, in which counsel agreed that the higher any settlement of the action, the higher an incentive award class counsel would request from the trial court. The case settled for $49 million, and class counsel sought a total of $325,000 in incentive awards. The trial court approved the settlement over several objections.

The Ninth Circuit held that the incentive agreements created an unacceptable conflict of interest between the class representatives and class counsel who signed them, on the one hand, and the members of the class, on the other. Nevertheless, because there were other class representatives who had no incentive agreements and whose separate counsel were not conflicted, the Court affirmed the district court order approving the settlement, but remanded for reconsideration of the order awarding $7 million in fees to the conflicted attorneys and awarding zero to the objectors.

In Rodriguez v. Disner, ---F.3d --- (9th Cir. 8/10/12) the Ninth Circuit revisits this same case, considering whether the trial erred in reducing class counsel's fee award to $500,000 or in denying fees to the objectors who had appealed.

The Court held that the district court had "broad discretion" to deny fees to an attorney who has committed an ethical violation, particularly in a common fund case such as this. Slip op. at 9079-9084. The Court then held that class counsel had committed an ethical violation in representing parties with conflicting interests. Slip op. at 9084-9086. As a result, the district court did not err in reducing counsel fee to $500,000. Slip op. at 9086-9088.

With regard to the objectors, the Court recognized that objectors may be entitled to recover attorney fees if their work increases the benefits to the class. Slip op. at 9088-9089. The majority of the objectors produced no benefit to the class, and the court did not err in denying them attorney fees. Slip op. at 9089-9090. However, the objectors who brought the incentive agreements to the court's attention and who briefed the conflict of interest issue in the district court and in the Court of Appeal did create a benefit for the class, and the court erred in denying them fees. Slip op. at 9090-9092.

The opinion is available here.