Robert Radcliffe v. Experian Info. Solutions ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT RADCLIFFE; CHESTER No. 14-56101
CARTER; MARIA FALCON; CLIFTON
C. SEALE, III; ARNOLD LOVELL, JR., D.C. No.
Plaintiffs-Appellants, 8:05-cv-01070-
DOC-MLG
v.
JOSE HERNANDEZ; ROBERT OPINION
RANDALL; BERTRAM ROBISON;
KATHRYN PIKE,
Plaintiffs-Appellees,
v.
EXPERIAN INFORMATION SOLUTIONS
INC.; EQUIFAX INFORMATION
SERVICES LLC; TRANSUNION, LLC,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted
November 5, 2015—Pasadena, California
Filed March 28, 2016
2 RADCLIFFE V. EXPERIAN INFO. SOLS.
Before: Mary M. Schroeder and Jay S. Bybee, Circuit
Judges and Jon S. Tigar,* District Judge.
Opinion by Judge Tigar
SUMMARY**
Counsel / Class Actions
The panel affirmed the district court’s order denying a
motion to disqualify counsel from representing a plaintiffs’
class in a consumer class action.
The court of appeals previously held that certain named
plaintiffs and their counsel (appellees) created a conflict of
interest by conditioning incentive awards for the class
representatives on their approval of a proposed settlement
agreement. On remand, other named plaintiffs and their
counsel (appellants) moved the district court to disqualify
appellees’ counsel from representing the class based on that
conflict.
Affirming the denial of the disqualification motion, the
panel agreed with the district court that California does not
apply a rule of automatic disqualification for conflicts of
simultaneous representation in a class action context. The
*
The Honorable Jon S. Tigar, District Judge for the U.S. District Court
for the Northern District of California, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RADCLIFFE V. EXPERIAN INFO. SOLS. 3
panel held that the district court did not abuse its discretion in
determining that appellees’ counsel would adequately
represent the class.
COUNSEL
George F. Carpinello (argued) and Adam R. Shaw, Boies,
Schiller & Flexner LLP, Albany, New York; Daniel Wolf,
Law Offices of Daniel Wolf, Washington D.C.; Charles W.
Juntikka, Charles Juntikka & Associates LLP, New York,
New York, for Plaintiffs-Appellants.
F. Paul Bland, Jr. (argued), Public Justice, P.C., Washington,
D.C.; James A. Francis and David A. Searles, Francis &
Mailman, Philadelphia, Pennsylvania; Michael W. Sobol,
Lieff, Cabraser, Heimann & Bernstein, LLP, San Francisco,
California; Michael A. Caddell and Cynthia B. Chapman,
Caddell & Chapman, Houston, Texas; Arthur H. Bryant,
Public Justice, P.C., Oakland, California; Stuart T. Rossman
and Charles M. Delbaum, National Consumer Law Center,
Boston, Massachusetts; Leonard A. Bennet and Matthew
Erausquin, Consumer Litigation Associates, P.C., Newport
News, Virginia; Lee A. Sherman, Callahan, Thompson,
Sherman & Caudill, Irvine, California, for Plaintiffs-
Appellees Jose Hernandez, Robert Randall, Bertram Robison,
and Kathryn Pike.
Daniel John McLoon, Jones Day, Los Angeles, California, for
Defendant-Appellee Experian Information Solutions, Inc.
Stephen J. Newman, Stroock, Stroock & Lavan LLP, Los
Angeles, California, for Defendant-Appellee Transunion,
LLC.
4 RADCLIFFE V. EXPERIAN INFO. SOLS.
OPINION
TIGAR, District Judge:
For the second time in this case, we are asked to resolve
questions regarding conflicts of interest and the adequacy of
counsel in class actions. Appellants and appellees are two
teams of named plaintiffs and their respective lawyers who
disagree over the proper direction for a consumer class action
settlement. In Radcliffe v. Experian Information Solutions,
Inc., 715 F.3d 1157 (9th Cir. 2013) (“Radcliffe I”), we held
that appellees created a conflict of interest by conditioning
incentive awards for the class representatives on their
approval of the proposed settlement agreement. On remand,
appellants moved the district court to disqualify appellees’
counsel from representing the class based on that conflict.
They contended that under California law, attorneys with
simultaneous conflicts of interest in a case must be
automatically disqualified. The district court rejected this
argument and denied the motion.
We agree with the district court that California does not
apply a rule of automatic disqualification for conflicts of
simultaneous representation in the class action context, and
conclude that the district court did not abuse its discretion in
determining that appellees’ counsel will adequately represent
the class. We affirm.
I.
We previously described the underlying facts in our
earlier opinion in this case. Radcliffe I, 715 F.3d at 1161–62.
The case is a consolidation of multiple class actions initiated
in 2005 and 2006 alleging that the Defendants in the case,
RADCLIFFE V. EXPERIAN INFO. SOLS. 5
Experian Information Systems, Inc., TransUnion LLC, and
Equifax Information Services LLC (“Defendants”), violated
the Fair Credit Reporting Act (FRCA) and corresponding
California state law by misreporting debts discharged in
bankruptcy on consumer credit reports. Id. at 1161.
Appellants are a group of plaintiffs who became lead
plaintiffs in one case known as the White lawsuit: Maria
Falcon, Chester Carter, Arnold Lovell, Jr., Clifton C. Seale,
III, and Robert Radcliffe (“White Plaintiffs”). They are
represented by Charles Juntikka, Daniel Wolf, and the law
firm of Boies, Schiller, and Flexner. (“White Counsel”).
Appellees are a group of plaintiffs from a different case, the
Hernandez lawsuit: Jose Hernandez, Kathryn Pike, Robert
Randall, and Bertram Robison (“Hernandez Plaintiffs”).
They are represented by the firms of Lieff, Cabraser,
Heimann, & Bernstein (“Lieff Cabraser”); Caddell &
Chapman; and Francis & Mailman (“Hernandez Counsel”).1
After the cases were consolidated, the district court appointed
Hernandez Counsel as lead counsel.
Following mediation, the parties reached a settlement
agreement for injunctive relief, which was approved in
August 2008 and was not disputed by any party. Radcliffe I,
715 F.3d at 1162. In February of 2009, the parties then
reached a monetary settlement for a total amount of $45
million. Id. The settlement included incentive awards for
each named plaintiff not to exceed $5,000, which were
awardable to any “Named Plaintiff[] serving as class
1
Though this factual discussion will refer to the White Counsel and
Hernandez Counsel teams generally in summarizing the settlement
negotiations, the firms of Boies Schiller and Francis & Mailman did not
join their respective legal teams until partway through the litigation.
6 RADCLIFFE V. EXPERIAN INFO. SOLS.
representatives” who was “in support of the Settlement.” Id.
The agreement was preliminarily approved in May 2009. Id.
The district court held a series of fairness hearings on the
monetary settlement. White Plaintiffs and White Counsel
objected to it, in part due to the discrepancy between the
settlement and the potential recoverable damages. See id. at
1162, 1167 n.4. They also argued that conditioning the
incentive awards on named plaintiffs’ agreement with the
settlement created a conflict of interest between the class
representatives and the absent class. Id. at 1162.
In Radcliffe I, we agreed with White Plaintiffs that the
conditional incentive award created a conflict of interest. We
noted that incentive awards for serving as class
representatives are often appropriate, but cautioned that they
should be scrutinized carefully, because “if ‘such members of
the class are provided with special incentives in the
settlement agreement, they may be more concerned with
maximizing those incentives than with judging the adequacy
of the settlement as it applies to the class members at large.’”
Radcliffe I, 715 F.3d at 1163 (quoting Staton v. Boeing Co.,
327 F.3d 938, 977 (9th Cir. 2003)). We then held that, in this
case, conditioning the incentive awards for the named
plaintiffs on their support of the settlement “changed the
motivations for the class representatives.” Id. at 1165.
“Instead of being solely concerned about the adequacy of the
settlement for the absent class members, the class
representatives now had a $5,000 incentive to support the
settlement regardless of its fairness and a promise of no
reward if they opposed the settlement.” Id. Moreover, “[a]s
soon as the conditional-incentive awards provision divorced
the interests of the class representatives from those of the
RADCLIFFE V. EXPERIAN INFO. SOLS. 7
absent class members, class counsel was simultaneously
representing clients with conflicting interests.” Id. at 1167.
Accordingly, we reversed the settlement as well as awards
of attorneys’ fees and costs. Id. at 1167–68. On remand, we
instructed the district court to “determine when the conflict
arose and if the conflict continues under any future settlement
agreement. Should the district court approve such an
agreement, it may then exercise its discretion in deciding
whether, and to what extent, class counsel are entitled to fees
under the common-fund doctrine.” Id.
On remand, White Counsel filed a motion to disqualify
Hernandez Counsel and to serve as interim class counsel on
June 19, 2013. They argued that disqualification was
mandatory under California law because any counsel’s
simultaneous conflict of interest in its representation of
multiple clients must result in automatic disqualification.
Hernandez Counsel opposed the motion and filed a cross-
motion to be re-appointed as interim class counsel. On May
1, 2014, the district court denied White Counsel’s motion and
granted Hernandez Counsel’s motion. This appeal by White
Counsel followed.
II.
In its May 1 order, the district court opined that its order
denying the motion to disqualify Hernandez Counsel
involved “controlling questions of law about which there is
substantial ground for difference of opinion and an immediate
appeal may materially advance the ultimate termination of
this litigation,” pursuant to 28 U.S.C. § 1292(b). We then
granted permission to appeal the district court’s order on July
9, 2014, and therefore have jurisdiction over the case.
8 RADCLIFFE V. EXPERIAN INFO. SOLS.
This Court reviews motions for disqualification of an
attorney for abuse of discretion. Paul E. Iacono Structural
Eng’r, Inc. v. Humphrey, 722 F.2d 435, 438 (9th Cir. 1983).
“Since the district court has primary responsibility for
controlling the conduct of attorneys practicing before it, an
order disqualifying counsel will not be disturbed if the record
reveals any sound basis for the court’s action,” and reversal
is warranted only if the district court “either misperceives the
relevant rule of law or abuses its discretion.” Id. (citation
omitted).
III.
In this appeal, as they did in the district court, White
Counsel contend that under California law, any conflict of
interest in the representation of a class mandates automatic
disqualification. Generally, California requires per se
disqualification when an attorney has been shown to possess
a simultaneous conflict of interest in her representation of
multiple clients, regardless of that attorney’s motives or the
actual impact of the conflict. The central question is whether
this remains true in class actions. For the reasons set forth
below, we conclude that California law does not require
automatic disqualification in class action cases, and affirm.
A.
The main question to be resolved in this appeal results
from three other points. First, California law governs
questions of conflicts of interest and disqualification. As we
noted in Radcliffe I, the Ninth Circuit refers to the local rules
of each district when deciding which standards govern an
ethical violation, and the Central District of California’s local
RADCLIFFE V. EXPERIAN INFO. SOLS. 9
rules instruct courts to look to California law and California’s
Rules of Professional Conduct. Radcliffe I, 715 F.3d at 1167.
Second, the parties agree on the existence of a rule in
California case law that a concurrent or simultaneous conflict
of interest under California Rule of Professional Conduct
3-310(C) generally leads to automatic disqualification. In
Flatt v. Superior Court, 9 Cal. 4th 275 (1994), the California
Supreme Court distinguished between two different types of
conflicts of interest that may arise. “Where the potential
conflict is one that arises from the successive representation
of clients with potentially adverse interests, the courts have
recognized that the chief fiduciary value jeopardized is that
of client confidentiality.” Flatt, 9 Cal 4th at 283. “Thus,
where a former client seeks to have a previous attorney
disqualified from serving as counsel to a successive client in
litigation adverse to the interests of the first client, the
governing test requires that the client demonstrate a
‘substantial relationship’ between the subjects of the
antecedent and current representations.” Id.“Both the interest implicated and the governing test are
different, however, where an attorney’s potentially conflicting
representations are simultaneous.” Id. at 284. Such
situations, with “perhaps the classic case involving an
attorney’s interests in conflict with those of the client,” do not
primarily implicate the duty of confidentiality but rather “the
attorney’s duty—and the client’s legitimate expectation—of
loyalty.” Id. at 284. “And because the substantial
relationship test is founded on the need to protect against the
improper use of client secrets,” that test “does not set a
sufficiently high standard.” Id. (citation omitted).
10 RADCLIFFE V. EXPERIAN INFO. SOLS.
Instead, Flatt held that the appropriate response to a
simultaneous conflict of interest is generally automatic
disqualification: “[I]n all but a few instances, the rule of
disqualification in simultaneous representation is a per se or
‘automatic’ one.” The California Supreme Court has
continued to adhere to this formulation. See People ex rel.
Dep’t of Corps v. SpeeDee Oil Change Sys., Inc., 20 Cal. 4th
1135, 1147 (1999) (“[I]f an attorney—or more likely a law
firm—simultaneously represents clients who have conflicting
interests, a more stringent per se rule of disqualification
applies.” (citing to Flatt, 9 Cal 4th at 284)); In re Charlisse
C., 45 Cal. 4th 145, 160 (2008) (“[W]ith few exceptions,
disqualification [in a case of simultaneous representation]
follows automatically, regardless of whether the simultaneous
representations have anything in common or present any risk
that confidences obtained in one matter would be used in the
other.” (quoting SpeeDee, 20 Cal. 4th at 1147)).
Third and finally, the parties in this case agree S as they
must, based on our holding in Radcliffe I S that the
conditional incentive award created a simultaneous conflict
of interest for Hernandez Counsel between the named
plaintiffs they represent and the rest of the class. Thus, the
operative question, as noted above, is whether the automatic
disqualification rule described in Flatt and its progeny
required the district court to grant White Counsel’s motion to
disqualify Hernandez Counsel.
Hernandez Counsel argued below that the automatic
disqualification rule should not apply in class action cases.
The district court agreed, concluding that there are
“compelling reasons to interpret California’s disqualification
rule flexibly in light of California case law,” for two reasons.
“First and foremost, this conflict was brief and caused by a
RADCLIFFE V. EXPERIAN INFO. SOLS. 11
specific provision in a now-defunct settlement.” “[T]he class
representatives did not have inherently opposing interests
from absent class plaintiffs,” but rather “the conflict was
manufactured by the faulty settlement terms.” “Second,” the
district court held that “even if California case law on
conflicts in class actions does not wholly abandon the
automatic disqualification rule, the analysis shows a
willingness to use the disqualification rule flexibly.”
White Counsel now offer several arguments as to why the
district court’s decision was an abuse of discretion. Their
primary contention is that the district court erred in holding
that the automatic disqualification rule does not apply to class
actions.
B.
“Because we apply state law in determining matters of
disqualification, we must follow the reasoned view of the
state supreme court when it has spoken on the issue.” In re
Cty. of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000)
(citation omitted). If the state supreme court has not spoken
on the issue, we look to intermediate appellate courts for
guidance, although we are not bound by them if we believe
that the state supreme court would decide otherwise. In re
KF Diaries, Inc. & Affiliates, 224 F.3d 922, 924 (9th Cir.
2000).
Though California regularly applies Flatt’s automatic
disqualification rule to lawsuits involving individual clients,
neither the parties nor the district court have found any case
in the California Supreme Court, or in any of the California
Courts of Appeal, that apply the rule to class actions. We,
too, have been unable to find any such case.
12 RADCLIFFE V. EXPERIAN INFO. SOLS.
On the other hand, there is also no case that explicitly
rejects the application of the automatic disqualification rule
to class actions. As the district court notes, however, two
intermediate appellate courts have directly adjudicated
questions of counsel’s disqualification in a class action due to
a simultaneous conflict of interest without mentioning the
automatic disqualification rule.
In Cal Pak Delivery, Inc. v. United States Parcel Service,
Inc., 52 Cal. App. 4th 1, 12–13 (1997), the appellate court
affirmed the disqualification of a class counsel who had
contacted the defendant and offered to dismiss the claim in
exchange for a payment of eight to ten million dollars directly
to counsel. Rather than apply an automatic disqualification
rule, the trial court had used the “balancing of interests” test
that California courts generally otherwise use for
disqualification motions. Id. at 10. Similarly, the appellate
court affirmed by focusing exclusively on whether the trial
court erred in its application of the balancing of interests test.
Id.
In Apple Computer, Inc. v. Superior Court, 126 Cal App.
4th 1253, 1265 (2005), the appellate court reversed the denial
of a motion to disqualify counsel for attempting to both
represent the class and serve as its named representative.
That case, much like this one, involved the concern that class
counsel might seek to obtain a settlement that would benefit
themselves but not the rest of the class. Id. at 1273. On the
strength of that concern, the appellate court concluded that
counsel had “placed themselves in a position of divided
loyalties,” and that doing so was grounds for disqualification.
RADCLIFFE V. EXPERIAN INFO. SOLS. 13
Id. (emphasis omitted). As in Cal Pak, the Apple Computer
court made no mention of the automatic disqualification rule.2
Lacking any case authority that is directly on point, White
Counsel fall back on the hortatory language of automatic
disqualification cases such as Flatt and SpeeDee. In essence,
appellants’ position is that because those decisions describe
the automatic disqualification rule in per se terms, and make
no mention of excluding class actions, the rule must therefore
apply to class actions.
This position is not implausible, but neither is it
persuasive. For one thing, Cal Pak and Apple Computer
suggest that California courts have not assumed that the
automatic disqualification rule applies in class action cases.
White Counsel argue that these two cases involve conflicts of
interest created by “ethical breaches” committed by the
attorneys rather than simultaneous representation of clients,
and that this explains why the automatic disqualification rule
was never discussed. But the California Supreme Court in
2
In addition to these two decisions, the district court also referenced
three other cases: Kullar v. Foot Locker Retail, Inc., 191 Cal. App. 4th
1201, 1207 (2011); Sharp v. Next Entertainment, Inc., 163 Cal. App. 4th
410, 434 (2008); Koo v. Rubio’s Restaurants, Inc., 109 Cal. App. 4th 719,
735 (2003). These cases are not directly on point, as they concern the
determination of when a conflict arises in the class action context rather
than how a court should treat a conflict of interest for disqualification
purposes. Nevertheless, the language of these decisions also suggests that
their authors did not believe an automatic disqualification rule would
apply. See, e.g., Koo, 109 Cal. App. 4th at 735 (“It is worth repeating that
‘the traditional rules that have been developed in the course of attorneys’
representation of the interests of clients outside of the class action context
should not be mechanically applied to the problems that arise in . . . class
action litigation.’”) (quoting In re “Agent Orange” Product Liability
Litig., 800 F.2d 14, 19 (2d. Cir. 1986)).
14 RADCLIFFE V. EXPERIAN INFO. SOLS.
Flatt defined the “classic case” of a simultaneous conflict of
interest as “involving an attorney’s interests in conflict with
those of the client,” Flatt, 9 Cal 4th at 284, a description that
could certainly be applied to the situations in both of these
cases. In the absence of California Supreme Court precedent
on the issue, we look to the intermediate state courts for
guidance, and Cal Pak and Apple Computer both indicate that
automatic disqualification is not required in class actions.
Moreover, the policy justifications that the California
Supreme Court advanced for the automatic disqualification
rule are not fully transferrable to class action cases. Indeed,
the language of their opinions makes clear that they
envisioned simultaneous conflicts of interest as they generally
occurred in individual litigant suits rather than in class
actions. In Flatt, the California Supreme Court explained the
reasoning behind the automatic disqualification rule as
follows:
The reason for such a rule is evident, even (or
perhaps especially) to the nonattorney. A
client who learns that his or her lawyer is also
representing a litigation adversary, even with
respect to a matter wholly unrelated to the one
for which counsel was retained, cannot long
be expected to sustain the level of confidence
and trust in counsel that is one of the
foundations of the professional relationship.
Flatt, 9 Cal 4th at 285 (emphasis in original). Similarly, the
court in SpeeDee stated that “[t]he most egregious conflict of
interest is representation of clients whose interests are
directly adverse in the same litigation.” SpeeDee, 20 Cal. 4th
at 1147.
RADCLIFFE V. EXPERIAN INFO. SOLS. 15
Neither of these pronouncements fits the circumstances of
the lawyer who represents a class of plaintiffs whose interests
may in some ways be adverse to each other, but all of whose
interests are adverse to the defendant. In a class action,
conflicts often arise not because an attorney simultaneously
represents litigation adversaries but because they
simultaneously represent different members of the same class
who develop divergent interests regarding how to prevail on
their shared claims. Thus, in Radcliffe I, we explained that
the conditional incentive award was improper because it
“undermined [the named plaintiffs’] ability to ‘fairly and
adequately protect the interests of the class.” Radcliffe I,
715 F.3d at 1165 (quoting Fed. R. Civ. Pro. 23(a)(4)). “This
requirement is rooted in due-process concerns—‘absent class
members must be afforded adequate representation before
entry of a judgment which binds them.’” Id. (quoting Hanlon
v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998)).
These concerns with adequate representation and due process
for absent party members are simply not present in individual
plaintiff suits. And because the California Supreme Court has
never discussed the automatic disqualification rule in the
context of class actions, it also has never been required to
confront the ethical issues and conflicts of interest that are
unique to class action cases. Given this vacuum, we are not
willing to assume that California courts would apply the same
disqualification rules to a class action case as they do in
individual plaintiff cases.
Nor would such a conclusion comport with federal law
regarding the requirements for adequate class counsel under
Federal Rule of Civil Procedure 23. See, e.g., Rodriguez v.
West Publishing Corp. (“Rodriguez I”), 563 F.3d 948, 961
(9th Cir. 2009) (concluding that “the adequacy requirement
for class counsel is satisfied” under Rule 23 despite “the
16 RADCLIFFE V. EXPERIAN INFO. SOLS.
presence of conflicted representatives.”). For these reasons,
we conclude that an automatic disqualification rule does not
apply.
C.
This conclusion is also consistent with our own case law
and the broader policy issues at play in class representation.
Indeed, although we did not address or consider the issue of
disqualification in our first decision in this case, it is clear we
did not believe the district court would be required to
disqualify Hernandez Counsel as a result of our holding. In
Radcliffe I, we instructed the district court on remand to
“determine when the conflict arose and if the conflict
continues under any future settlement agreement. Should the
district court approve such an agreement, it may exercise its
discretion in deciding whether, and to what extent, class
counsel are entitled to fees under the common-fund doctrine.”
Radcliffe I, 715 F.3d at 1168 (emphasis added). Had we
believed that Hernandez Counsel were automatically
disqualified following their creation of a conflict of interest
in the prior settlement agreement, it is unclear how the district
court would have had discretion to decide whether and to
what extent they were entitled to fees.
Further support for this conclusion can be found in our
decisions in the Rodriguez cases: Rodriguez I, 563 F.3d 948,
and Rodriguez v. Disner (“Rodriguez II”), 688 F.3d 645 (9th
Cir. 2012). Though these cases were concerned with awards
of attorney’s fees rather than disqualification, the analysis is
similar and we cited extensively to both cases in our first
Radcliffe decision. In Rodriguez I, we held that the retainer
agreement for the attorneys for five named plaintiffs in a
class action created an improper conflict of interest between
RADCLIFFE V. EXPERIAN INFO. SOLS. 17
the named plaintiffs and the class because it required the
attorneys to seek incentive awards for each of the named
plaintiffs after settlement. Rodriguez I, 563 F.3d at 957. On
remand, the district court denied attorney’s fees to those class
counsel “for the period this conflict was in effect,” but
awarded fees for their services “after the court’s rejection of
the incentive awards.” Rodriguez II, 688 F.3d at 652. On
appeal, we agreed with this reasoning, holding that the latter
award was proper because the “rejection of the incentive
awards cured any conflict of interest.” Id. at 660 n.12.
Similarly, in this case the district court could reasonably
conclude that the conflict of interest was appropriately cured
when we rejected the settlement agreement that contained the
improper conditional incentive award. This conflict was not
inherent to the relationship between Hernandez Counsel and
the rest of the class but rather, as in Rodriguez, resulted from
a particular provision in an agreement that was later held
invalid.
Finally, we note that numerous other circuit courts have
declined to apply the same disqualification rules to class
actions as to non-class actions specifically because of the
different concerns at issue for attorney representation in class
action lawsuits. In In re “Agent Orange” Product Liability
Litigation, 800 F.2d 14, 18 (2d. Cir. 1986), the Second Circuit
held that “although automatic disqualification might promote
the salutary ends of confidentiality and loyalty” in traditional
cases, “it would have a serious adverse effect on class
actions.” It noted that class actions are often “the only
practical means” for plaintiffs with small individual claims to
protect their rights, and that “often only the attorneys who
have represented the class, rather than any of the class
members themselves, have substantial familiarity with the
18 RADCLIFFE V. EXPERIAN INFO. SOLS.
prior proceedings.” Id. at 18–19. In turn, “the prospect of
having those most familiar [with the case] be automatically
disqualified whenever class members have conflicting
interests would substantially diminish the efficacy of class
actions as a method of dispute resolution.” Id. at 19. The
Second Circuit concluded that “the traditional rules that have
been developed in the course of attorneys’ representation of
the interests of clients outside of the class action context
should not be mechanically applied to the problems that arise
in the settlement of class action litigation.” Id.In Lazy Oil Co. v. Witco Corp., 166 F.3d 581, 589 (3d Cir.
1999), the Third Circuit also rejected the notion that a conflict
of interest should automatically disqualify class counsel even
though such a result would be required in a non-class action.
It noted that “[i]n many class actions, one or more class
representatives will object to a settlement and become
adverse parties” to the rest of the class. Id. “If, by applying
the usual rules on attorney-client relations, class counsel
could easily be disqualified in these cases, not only would the
objectors enjoy great ‘leverage,’ but many fair and reasonable
settlements would be undermined by the need to find
substitute counsel after months or even years of fruitful
settlement negotiations.” Id.This analysis is compelling, and further supports our
conclusion that the California Supreme Court would not
require automatic disqualification in class actions. White
Counsel argue that, rather than lowering the bar for
disqualification in class actions, the standard should be
heightened due to the “unique due process concerns for
absent class members.” Unquestionably, the due process
rights of absent class members are important and, as we have
frequently observed, the district judges who preside over
RADCLIFFE V. EXPERIAN INFO. SOLS. 19
class actions must ensure that those interests are fairly
protected. See, e.g., Allen v. Bedolla, 787 F.3d 1218, 1223
(9th Cir. 2015). But that premise does not support the
adoption of per se disqualification rules that were developed
outside the class action context. On the contrary, district
courts should have discretion to deal with the unique
complexities and ethical concerns involved in class action
lawsuits. See Rodriguez II, 688 F.3d at 655 (“[C]onflicts of
interest among class members are not uncommon and arise
for many different reasons, and a court may tolerate certain
technical conflicts in order to permit attorneys who are
familiar with the litigation to continue to represent the class.”
(citation omitted)). Unlike an automatic disqualification rule,
a pragmatic approach comports most closely with Rule 23’s
mandate that courts protect the best interests of absent class
members.
D.
In sum, we agree with the district court that California
law does not require automatic disqualification for
simultaneous conflicts of interest in class actions.
Accordingly, the district court did not abuse its discretion in
declining to apply the automatic disqualification rule in this
case.
After reaching that conclusion, the district court next
considered the “balancing of interests” test, which California
courts use generally to decide whether, in their discretion,
disqualification is appropriate:
The court must weigh the combined effects of
a party’s right to counsel of choice, an
attorney’s interest in representing a client, the
20 RADCLIFFE V. EXPERIAN INFO. SOLS.
financial burden on a client of replacing
disqualified counsel and any tactical abuse
underlying a disqualification proceeding
against the fundamental principle that fair
resolution of disputes within our adversary
system requires vigorous representation of
parties by independent counsel unencumbered
by conflicts of interest.
William H. Raley Co. v. Superior Court, 149 Cal. App. 3d
1042, 1048 (1983). White Counsel do not substantively
challenge the district court’s application of the balancing of
interests test. In any event, there was no error in the district
court’s analysis. The court concluded that the burden of
replacing Hernandez Counsel’s greater expertise and
experience outweighed any concerns of fairness or loyalty,
which was a decision well within its discretion.
IV.
White Counsel’s remaining arguments arise under Federal
Rule of Civil Procedure 23(g). They argue that the district
court abused its discretion in holding that Hernandez Counsel
remained adequate class representatives, and that White
Counsel were not “best able” to represent the interests of the
class. We conclude that neither decision was in error.
A.
Federal Rule of Civil Procedure 23(g)(2) states that:
“When one applicant seeks appointment as class counsel, the
court may appoint that applicant only if the applicant is
adequate under Rule 23(g)(1) and (4). If more than one
adequate applicant seeks appointment, the court must appoint
RADCLIFFE V. EXPERIAN INFO. SOLS. 21
the applicant best able to represent the interests of the class.”
Rule 23(g)(1) requires the court to consider:
(i) the work counsel has done in identifying or
investigating potential claims in the action;
(ii) counsel’s experience in handling class
actions, other complex litigation, and the
types of claims asserted in the action;
(iii) counsel’s knowledge of the applicable
law; and
(iv) the resources that counsel will commit to
representing the class
Fed. R. Civ. P. 23. In addition, the court “may consider any
other matter pertinent to counsel’s ability to fairly and
adequately represent the interests of the class.” Rule 23(g)(4)
states that the duty of class counsel is to fairly and adequately
represent the interests of the class.
Under the four factors listed in Rule 23(g)(1), the district
court held that both Hernandez Counsel and White Counsel
were adequate to represent the class. It acknowledged that
the prior conflict of interest was a relevant and significant
concern, but concluded it did not render Hernandez Counsel
inadequate because it was temporary and had been cured.
Finally, under Rule 23(g)(2), the court concluded that
Hernandez Counsel remained “best able” to represent the
class as class counsel based on its greater experience in
handling class actions and FRCA litigation and its greater
knowledge of the applicable law.
22 RADCLIFFE V. EXPERIAN INFO. SOLS.
B.
White Counsel first challenge the district court’s
conclusion that Hernandez Counsel are adequate. They do
not dispute the district court’s treatment of the four required
factors under Rule 23(g)(1). Instead, their challenge is based
entirely on the district court’s treatment of the conflict of
interest created by Hernandez Counsel. To a large extent,
their argument is identical to the one they make under
California law – namely, that a conflict of interest should
require an automatic determination of inadequacy based on
the “breach of loyalty.” We reject this contention here for the
same reasons we rejected a per se disqualification rule in the
previous section.
They also argue that the conflict of interest renders
Hernandez Counsel inadequate because Hernandez Counsel
are now potentially civilly liable for the misconduct of
including the conditional incentive award. In turn, they
argue, Hernandez Counsel’s interests diverge from the class
because they may now seek a quicker settlement or pursue
different monetary relief in order to minimize their own
liability. We agree with the district court that neither
precedent nor policy supports the proposition that potential
civil liability renders attorneys inadequate to represent a
class. Nor could it, because the simple fact is that the
possibility of suit by an unhappy client inheres in any lawsuit,
class action or otherwise, and White Counsel proposes no
method by which to determine when that prospect becomes
relevant under Rule 23. There also will always be a concern
in class actions that counsel might accept a quick settlement,
and the fees that come with it, over a more favorable result
for the class. Staton v. Boeing Co., 327 F.3d 938, 977 (9th
Cir. 2003). The solution is not to prescribe an inflexible,
RADCLIFFE V. EXPERIAN INFO. SOLS. 23
brightline rule but to give district courts discretion to manage
these issues in each case.
Finally, White Counsel argue that even if Hernandez
Counsel are adequate, the district court abused its discretion
in finding that White Counsel are not “best able” to represent
the class. They contend that the district court’s decision was
based exclusively on its belief, shared by Hernandez Counsel,
that White Counsel had an unrealistic valuation of the
available damages for the class. In fact, the district court
carefully analyzed each factor under Rule 23(g)(1) in
reaching its decision. It held that the first and fourth factors
did not weigh in favor of either party, because both legal
teams had done extensive work for the class and both teams
possessed wide resources among the many firms comprising
each of them. It based its decision instead on the second and
third factors, finding that Hernandez Counsel – the “FCRA-
dedicated lawyers from Francis & Mailman” and the “class-
action focused attorneys from Lieff Cabraser and Caddell &
Chapman” – possessed greater experience and knowledge
relevant to this case.
As for the conflict of interest, the district court again
found it was relevant but concluded it did not outweigh its
other concerns. It noted that Hernandez Counsel had “taken
extraordinary steps to neutralize the effect of the ethical
violation, including associating new counsel, disclaiming any
fees for the conflicted representation, and agreeing to accept
the costs of re-notice.” Lastly, White Counsel are correct that
the district court concluded that White Counsel had placed an
unreasonably high valuation on the case, and factored that
concern into its decision not to appoint White Counsel as lead
counsel. But this was not an abuse of discretion. District
courts are properly given discretion to decide matters of class
24 RADCLIFFE V. EXPERIAN INFO. SOLS.
representation and class action administration both because
they are responsible for protecting absent class members’ due
process interests, and because they are far more familiar with
the case, the class, and the attorneys who may be vying for
control of the litigation. Here, the district court properly held
that Hernandez Counsel remained adequate and best able to
represent the consumer class.
V.
We previously found that Hernandez Counsel created a
significant conflict of interest between themselves, their
clients, and the rest of the class, and nothing in the present
order diminishes or qualifies that holding. We are not
convinced, however, that the conflict we found requires
automatic disqualification of class counsel. We believe that,
given the unique ethical and due process concerns involved
in class actions, district courts must have the discretion to
address attorney representation and disqualification issues
based on the details of each case, and we further believe the
California Supreme Court would agree. Accordingly, we
hold that the district court did not abuse its discretion in
denying White Counsel’s motion to disqualify Hernandez
Counsel and to be appointed as class counsel, and granting
Hernandez Counsel’s cross-motion to be appointed as class
counsel.
AFFIRMED.