Ethical Conflicts Dooms Fee Claim in a Major Antitrust Class Action

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In Rodriguez v. Disner, 2012 DJDAR 11142 (2012), the United States Court of Appeals for the Ninth Circuit decided a novel attorney fee case implicating the rules of ethics in a class action context. The case implicated the propriety of “incentive agreements” between the plaintiffs’ class action lawyers and the five named plaintiffs in a massive antitrust class action.

The class action plaintiffs’ firm brought an action against a bar preparation course company. After the case settled, the class counsel sought attorney fees under the provisions of Federal Rule of Civil Procedure 23(a). The district court denied the fees petition in its entirety, on the grounds that the incentive agreements entered into between the class lawyers and five of the named plaintiffs breached the California Rules of Professional Conduct by creating conflicts of interests that were not disclosed and discharged by waiver or consent. Class counsel contended that the court could not deny fees unless counsel knowingly or willfully violated an ethical rule. The lawyers also suggested that because there was no “harm,” it was not proper to deny the fee claim.

The Ninth Circuit affirmed the trial court’s decision. The Ninth Circuit noted that in determining what fees are reasonable, a court may consider whether the attorney violated the California Rules of Professional Conduct during the handling of the litigation. The Ninth Circuit also referenced the court’s equitable power to deny attorney fees when an attorney represents clients with conflicting interests.

The Ninth Circuit seemed convinced that it was appropriate to deny fees where the class lawyers knowingly created a conflict of interest. The court noted that the agreements at issue created a conflict between clients because it treated certain clients better than others. The Ninth Circuit also referenced the fact that class counsel failed to disclose the agreements to the court and to the class in violation of both its fiduciary duties to the class and the duty of candor. On this basis, the court affirmed the denial of fees.