Archive for July 16th, 2009

In an opinion entered in April in Rodriguez v. West Publishing Corp., the U.S. Court of Appeals for the Ninth Circuit stated its disapproval of the practice of plaintiffs’ counsel entering into incentive agreements with putative class representatives, which required their attorneys to seek successively higher payment in the event of class settlements in successively higher dollar amounts.  The court described the problem as follows:

Incentive awards are fairly typical in class action cases. See 4 William B. Rubenstein et al., Newberg on Class Actions§ 11:38 (4th ed. 2008); Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs:  An Empirical Study, 53 U.C.L.A. L. Rev. 1303 (2006) (finding twenty-eight percent of settled class actions between 1993 and 2002 included an incentive award to class representatives). Such awards are discretionary, see In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 463 (9th Cir. 2000), and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general. Awards are generally sought after a settlement or verdict has been achieved.

The incentive agreements entered into as part of the initial retention of counsel in this case, however, are quite different. Although they only bound counsel to apply for an award, thus leaving the decision whether actually to make one to the district judge, these agreements tied the promised request to the ultimate recovery and in so doing, put class counsel and the contracting class representatives into a conflict position from day one.

The court went on to approve the settlement, which called for the creation of a $49 million settlement fund to compensate a class consisting of aspiring lawyers who paid for  BAR/BRI bar review courses from August 1997 through July 31, 2006.  The court reasoned that although the incentive agreements were improper, there were two settlement class representatives who had not been parties to the agreements.  However, the court remanded for a reconsideration of the attorneys fees to be awarded to the class counsel who had negotiated the incentive agreements and the possibility of an award to counsel for objectors who successfully objected to the incentive fee agreements.

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