## Facts

- Bar-review students brought an antitrust class action against West Publishing Corp. and Kaplan, Inc., which later settled through a common fund.
- McGuireWoods LLP became lead class counsel after acquiring the firm that initiated the litigation.
- Before trial and before any settlement, five of seven named class representatives executed confidential “settlement incentive” agreements with class counsel.
- The agreements promised escalating payments to those representatives based on the size of any class recovery, up to $75,000 each if the common fund reached specified thresholds.
- The incentive agreements were not disclosed to absent class members during class certification or notice.
- After settlement, the district court awarded attorneys’ fees to class counsel from the common fund.
- In a prior appeal, the Ninth Circuit held the incentive agreements created an actual conflict of interest and remanded for reconsideration of class counsel’s fee entitlement.
- On remand, the district court denied all fees to class counsel as an equitable remedy for the ethical violation and also denied requested fees to objectors’ counsel for challenging the fee award and exposing the conflict.
- Multiple objector groups and class counsel appealed in thirteen consolidated appeals.

## Issues

1. Whether the district court abused its discretion, under equitable principles, by ordering complete forfeiture of class counsel’s fees due to an undisclosed conflict of interest created by settlement incentive agreements with named class representatives.
2. Whether the district court abused its discretion by denying attorneys’ fees to objectors’ counsel whose efforts revealed the conflict and affected the disposition of class counsel’s fees.

## Decision

- The Ninth Circuit affirmed the denial of all attorneys’ fees to McGuireWoods.
- The court held the district court had broad equitable discretion to deny fees for ethical violations involving conflicts of interest, even without a showing of monetary harm to the class.
- The Ninth Circuit vacated and remanded the order denying fees to the Schneider objectors for reconsideration.
- The court otherwise affirmed the district court’s denial of fees to other objectors.
- Disposition: affirmed in part; vacated and remanded in part.

## Legal Principles

- A district court supervising a class action settlement has broad equitable discretion to deny or forfeit attorneys’ fees when counsel commits an ethical violation, including representation burdened by conflicting interests.
- Fee forfeiture for a conflict of interest does not require proof that the client or class suffered quantifiable financial injury; the seriousness and character of the breach may justify denial of compensation.
- Confidential agreements granting selected class representatives size-contingent payments tied to settlement amount can create an actual conflict with absent class members and compromise adequacy of representation.
- Objectors’ counsel may be entitled to fees when their work confers a substantial benefit on the class or the administration of the settlement (including preserving common-fund assets); categorical denial despite such a benefit can be an abuse of discretion.

## Conclusion

The Ninth Circuit upheld complete fee forfeiture for class counsel that arranged undisclosed, size-contingent incentive agreements creating an actual conflict of interest, and it required the district court to reconsider fees for the objectors whose efforts materially contributed to identifying and remedying that conflict.


Rodriguez v. Disner, 688 F.3d 645 (9th Cir. 2012)