PASADENA, Calif. (CN) – An attorney on Monday asked the 9th Circuit to toss out a $45 million settlement against three major credit reporting agencies, claiming settling attorneys had “dangled” illegal incentives in front of class members.
Lead plaintiff Terri White in 2005 sued Experian Information Solutions, Equifax Information Services, and Trans Union, in Los Angeles Federal Court, alleging willful and negligent violations of the Fair Credit Reporting Act.
The class claimed the credited agencies misreported debts discharged in bankruptcy, and refused to investigate disputes over the status of discharged accounts.
In September 2011, U.S. District Judge David Carter approved a $45 million settlement, despite objections that the award should be in the billions.
Carter found that a larger settlement would have been “unrealistic and counterproductive,” and called the proposed settlement “fair, adequate and reasonable.”
“Given the FCRA [Fair Credit Reporting Act]’s goal of deterring offenders from improperly reporting credit, the detriment that the settlement imposes on defendants ought to be considered alongside the benefit that the settlement confers on class members. The court finds that a $45 million judgment suffices to deter similar conduct similar to that which precipitated the lawsuit,” Carter wrote.
On Monday, attorney for objectors, George Carpinello with Boies, Schiller & Flexner of Albany, N.Y., asked a three-judge panel of the 9th Circuit to overturn Carter’s ruling, claiming that a $5,000 incentive award for settling plaintiffs created a conflict of interest.
He claimed that class counsel had “dangled” the incentive before the settling plaintiffs in return for supporting the settlement. If they disagreed with the agreement, plaintiffs were told they would walk away with nothing, Carpinello said.
In Rodriguez v. Disner the 9th Circuit ruled that incentive agreements created an illegal conflict of interest between a class and its counsel.
Carpinello asked the panel to replace counsel and set the settlement aside under a similar conflict-of-interest determination.
Most plaintiffs “did not like” the settlement, and Judge Carter did not “even address the issue” of a conflict of interest in his order, Carpinello said.
Carpinello became so animated that Judge Kim Wardlaw asked him to lower his voice.
After apologizing, Carpinello said the case should be remanded, or the settlement renegotiated for more than a “penny on the dollar.”
The plaintiffs had standing to show that they had been harmed, Carpinello said. He said the defendant agencies’ “own records” showed that 15 million people had been on the receiving end of misstated credit reports.
“It’s a statutory damage case. All the claimant has to prove is that a credit report was issued with a credit line that wrongfully stated that my debt was still owing or charged wrong,” Carpinello said.
But Michael Caddell, with Caddell & Chapman of Houston, accused Carpinello of fudging the facts.
Caddell said that Judge Carter had “bent over backwards” to examine the fairness of the $5,000 incentive award, and that Carpinello had previously deemed it reasonable.
“This is so far from Rodriguez,” Caddell told the panel.
U.S. District Judge Sam Haddon, appearing via a video link-up from Montana, asked if language in the agreement permitted an incentive award only if plaintiffs supported the settlement.
“It’s funny, judge,” Caddell said. “I don’t think that when we drafted the agreement we had any notion at all that this would become controversial. What we were simply saying is that these class representatives are entitled to an incentive award for having served in support of the settlement.”
Plaintiffs were compensated not because they agreed or disagreed with the settlement, but because they had “stepped forward,” given depositions and helped with discovery during the litigation, Caddell said.
He said there was no evidence of “undue influence or coercion” by settling attorneys.
“This is a good settlement. In the context of the Fair Credit Reporting Act, this is the second largest settlement in history,” Caddell said.
Experian attorney Daniel McLoon, with Jones Day of Los Angeles, agreed. He said the incentive award did not “deter opposition to the settlement,” or “affect the negotiation process.”
It would be “virtually impossible to manage the resolution” of up to 15 million potential claims because Experian did not keep records of all the credit reports it issued, McLoon said.
During rebuttal, Carpinello called McLoon “disingenuous.” He said Experian had records of when it issued the reports.
“That’s exactly how they came up with 15 million people,” he said.
Judge Ronald Gould sat with Judges Wardlaw and Haddon on the panel.
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