HAMILTON, Circuit Judge.
These appeals present several issues concerning class action litigation and settlements. The most general is whether the "coupon settlement" provisions of the Class Action Fairness Act, 28 U.S.C. § 1712, allowed the district court to award class counsel an attorney fee based on the lodestar method rather than the value of the redeemed coupons. Our answer to that question is yes.
In August 2010, Southwest Airlines stopped honoring certain in-flight drink vouchers issued to customers who had bought "Business Select" fares. Southwest customers Adam Levitt and Herbert Malone filed this suit against Southwest seeking to represent a class of similarly situated plaintiffs. The parties reached a settlement to provide replacement drink vouchers to all members of the class, as well as injunctive relief constraining how Southwest could issue vouchers in the future. The parties later negotiated an agreement on attorney fees for class counsel.
The district court certified the class and approved the class relief components of the settlement but awarded class counsel a smaller fee than they had requested. Class members Gregory Markow and Alison Paul objected to the settlement and now appeal its approval. They argue both that the district court erred by using the lodestar method and that the settlement is unfair to the class because it is too generous to class counsel. Class counsel filed a cross-appeal seeking a larger fee.
We affirm. While the fee aspects of this class settlement include two troublesome features — "clear-sailing" and "kicker" clauses, both of which are explained and discussed below — the dominant feature of the settlement is that it provides class members with essentially complete relief. That degree of success on behalf of the class satisfied the district court that the class was not short-changed for the benefit of class counsel, and it satisfies us as well.
In one respect, however, we modify the terms of the settlement agreement. The financial and professional relationship between lead class counsel and one of the lead plaintiffs created a potential conflict of interest for both given their fiduciary duties to the class. This conflict should have been disclosed to the district court but was not. Where another lead plaintiff had no conflict and the class received essentially complete relief, however, we see no basis for decertifying the class or rejecting the settlement. Instead, we modify the settlement as approved to remove the $15,000 incentive award for the plaintiff and to reduce the lawyer's fee by the same amount.
For several years passengers who bought "Business Select" tickets on Southwest Airlines received vouchers good for a free in-flight alcoholic drink. The vouchers did not contain expiration dates. Some customers saved them for future use, and Southwest honored them, at least for a while. In August 2010, however, Southwest stopped honoring these older vouchers, announcing that each voucher was good only on the flight covered by the accompanying ticket.
Levitt and Malone filed suit against Southwest on behalf of a purported class of plaintiffs holding unredeemed Business Select drink vouchers that were suddenly
The parties agreed to settle the breach of contract claim. The settlement provides for class certification and includes three types of relief. First, it requires Southwest to issue replacement coupons to each class member who files a claim form. The coupons are transferable and good for one year on any Southwest flight. Second, the settlement provides injunctive relief to prevent similar controversies over expiration dates if Southwest issues new coupons in the future. Third, the settlement provides for incentive awards to the two lead plaintiffs of $15,000 each.
After reaching this settlement of the merits, the parties negotiated the attorney fees for class counsel. These negotiations continued for four months and resulted in Southwest agreeing to pay, without objection, court-awarded attorney fees of up to $3,000,000 plus expenses of up to $30,000.
Class members Gregory Markow and Alison Paul objected to the settlement and the fee request. Markow argued that the settlement violated Federal Rule of Civil Procedure 23(e) because the fee award was disproportionate to class relief and because the fee settlement included "clear-sailing" and "kicker" clauses designed to shield the fee award from challenge. In a typical "clear-sailing" clause, the defendant agrees not to oppose a fee award up to a certain amount. A "kicker" clause provides that if a court reduces the attorney fee sought in a class action, the reduction benefits the defendant rather than the class. Markow also argued that the attorney fee in this "coupon settlement" had to be based on the value of coupons actually redeemed by class members, under a provision of the Class Action Fairness Act (CAFA), 28 U.S.C. § 1712.
The district court approved the class settlement as fair and reasonable, focusing primarily on the fact that the settlement provided essentially complete relief to the class. The district court determined that § 1712 applied to the settlement because the vouchers were "coupons" within the meaning of that provision, though the usual concerns about coupon settlements are minimal here because the class's claim itself is for the value of coupons that already required class members to buy plane tickets to use. The court further determined that § 1712 permits the use of the lodestar method to determine attorney fees based on coupon relief. The court used the lodestar method, with a multiplier of 1.5 for good results, to calculate a fee of $1,332,206.25, plus $18,522.32 in expenses. On counsel's Rule 59(e) motion, the district court held an evidentiary hearing and increased the fee award to $1,649,118 by using higher hourly rates.
These appeals followed, challenging the fairness of the settlement and the fee award. Objector Markow also raises a new issue on appeal, challenging approval of the settlement on the ground that an undisclosed conflict of interest on the part of class counsel and one lead plaintiff should preclude class certification. We consider first § 1712 regarding coupon settlements, then the overall fairness of the settlement, counsel's cross-appeal, and finally the conflict-of-interest issue.
When Congress enacted the Class Action Fairness Act, one of its targets was abusive "coupon settlements," where defendants and class counsel agree to provide coupons of dubious value to class
The potential for abuse is greatest when the coupons have value only if a class member is willing to do business again with the defendant who has injured her in some way, when the coupons have modest value compared to the new purchase for which they must be used, and when the coupons expire soon, are not transferable, and/or cannot be aggregated. See In re HP Inkjet Printer Litig., 716 F.3d 1173, 1177-79 (9th Cir.2013) (discussing some of these common concerns about coupon settlements); Synfuel Technologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir.2006) (same), citing Christopher R. Leslie, The Need to Study Coupon Settlements in Class Action Litigation, 18 Geo. J. Legal Ethics 1395, 1396-97 (2005).
Identifying abusive coupon settlements, however, was easier than crafting legislation to prevent them. As one scholar observed, CAFA resulted from "years of intense lobbying (on both sides of the aisle by interest groups associated with both plaintiffs and defendants), partisan wrangling, and, following two successful filibusters, fragile compromises." Stephen B. Burbank, The Class Action Fairness Act of 2005 in Historical Context: A Preliminary View, 156 U. Pa. L.Rev. 1439, 1441 (2008). Such compromises make it especially important for courts, when told by either side that they have secured a particular favor from Congress, to "ask to see the bill of sale." Chicago Professional Sports Ltd. P'ship v. National Basketball Ass'n, 961 F.2d 667, 671 (7th Cir.1992). With that caution in mind, we turn first to whether § 1712 applies to this settlement and then to whether the district court had discretion to use the lodestar method to decide class counsel's fee.
We hold first that § 1712 applies to this settlement. This provision applies to class action settlements that provide for "a recovery of coupons." We have rejected a narrow definition of "coupon" by rejecting, for purposes of § 1712, a proposed distinction between "vouchers" (good for an entire product) and "coupons" (good for price discounts). Redman v. RadioShack Corp., 768 F.3d 622, 636-37 (7th Cir.2014). Despite the protests of class counsel, the replacement vouchers for free drinks on Southwest flights are indeed "coupons" and hence this settlement is subject to § 1712. Like the district court, we recognize of course the irony that the subject of this class action is the value of coupons given to replace coupons. But also like the district court, we allow for that in considering whether the settlement is fair and reasonable.
The more difficult issue is whether § 1712 allowed the district court to use the lodestar method to calculate the fee award for class counsel. Objector Markow contends that § 1712(a) prohibited use of the lodestar method and that the only permissible basis for a fee award here would be the value of the new coupons actually redeemed by class members. Under this view, use of the lodestar method in a coupon settlement is not permissible (except to compensate counsel for obtaining injunctive relief, which had minimal value here).
That view was adopted by a divided Ninth Circuit panel in HP Inkjet, 716 F.3d at 1183-85. Judge Berzon in dissent argued that § 1712 gives a district court discretion to use the lodestar method to
The proper interpretation of § 1712 is a question of law that we review de novo. E.g., Manning v. United States, 546 F.3d 430, 432 (7th Cir.2008). In essence, we agree with Judge Berzon, as the district court did here. One portion of § 1712, if interpreted in isolation, supports the HP Inkjet majority's view. But a broader view of the text and structure of § 1712, along with its legislative history and purpose, persuades us that § 1712 allows a district court discretion to use the lodestar method to calculate attorney fees even when those fees are intended to compensate class counsel for the coupon relief he or she obtained for the class.
Statutory interpretation begins with the language of the statute. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 251, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010). Section 1712 provides in relevant part:
Objector Markow argues that subsection (a) prohibits the use of the lodestar method except to the extent a fee award is based on injunctive or other non-coupon relief in a settlement. Markow emphasizes the phrase "attributable to." Invoking dictionary definitions and even a philosophical monograph on John Locke indicating that "attributable to" means "caused by," Markow argues that the entire fee in this case was "caused by" the coupons under the settlement, so he concludes that the fee award for this settlement must be calculated using § 1712(a)'s
Yet § 1712(a) does not expressly prohibit use of the lodestar method. What the sentence does, unambiguously, is reject the most abusive method for calculating a fee in a coupon settlement: calculating the fee as a percentage of the face value of all the coupons issued. A little background makes this clear. Under the "common fund" doctrine, an attorney who recovers a common fund for the benefit of a class is entitled to a reasonable portion of the fund that is made available to the class rather than the amount actually claimed by the class. See Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980); Americana Art China Co. v. Foxfire Printing & Packaging, Inc., 743 F.3d 243, 247-248 (7th Cir.2014). Because of low claims rates, the difference can be dramatic even where both the class recovery and the attorney fee are paid in cash.
As applied to coupon settlements, this method invites abuse. Class counsel and a defendant could agree on a settlement providing class members with coupons, which are valuable only if class members are willing to do business with the defendant again, and providing counsel with a cash payment calculated as a percentage of the face value of all coupons made available to class members, regardless of whether they are actually used or even likely to be used. (In this case, for example, class counsel estimated that the class would receive coupons with nominal values totaling $29 million, and they initially proposed a fee of $7 million, which might have seemed reasonable as less than 20% of the imaginary common fund that combined actual cash with the face value of the available coupons.)
To protect against such abusive settlements, § 1712(a) requires that any percentage-of-recovery award in a coupon settlement be based upon a percentage of the value of the coupons actually redeemed by class members, not the nominal value of the coupons merely available to the class.
Subsection (a) does not, however, prohibit the use of the lodestar method for coupon settlements that do not provide injunctive relief. The Ninth Circuit majority in HP Inkjet reached the opposite conclusion because, like Markow, it thought that the term "attributable to" clearly means "caused by." We do not share their sense that the words "attributable to," and the words of subsection (a) more generally, have such a plain meaning. The phrase can also be understood as providing a choice: if any portion of the fee is attributed to the coupon benefits, then that portion of the fee must be based on the coupons used, but that is not the only method available. Taken on its own, subsection (a) is ambiguous on this point. It can be fairly read as the HP Inkjet majority read it, but that is not the only possibility.
The meaning of subsection (a) becomes clearer, however, when we look at how it fits together with the other fee provisions in subsections (b) and (c). Section 1712 provides a good example of the need to
Subsection (b)(1) both contemplates and allows the possibility that "a portion of the recovery of the coupons" will not be used to determine the fee for class counsel, and that instead the lodestar method will be used:
(Emphases added.) (The "amount of time class counsel reasonably expended working on the action" refers to the lodestar method.) The only alternative to the percentage of recovery method is provided by § 1712(b)(1), which quite clearly authorizes the use of the lodestar method to calculate attorney fees in coupon settlements.
This view of subsections (a) and (b) is the same described in the key Senate committee report on the bill that became CAFA. After summarizing the abuses of coupon settlements, the committee explained:
S.Rep. No. 109-14, at 30, as reprinted in 2005 U.S.C.C.A.N. 3, at 30 (emphases added).
Subsections (a) and (b) thus fit together to force a choice between the lodestar method and a percentage of coupons redeemed. See HP Inkjet, 716 F.3d at 1192-93 (Berzon, J., dissenting). The one choice prohibited by subsection (a) is using a percentage-of-recovery method based on the face value of all coupons merely available to the class.
Subsection 1712(c), entitled "attorney's fee awards calculated on a mixed basis in coupon settlements," further clarifies the relationship between (a) and (b). Subsection (c) provides:
Subsection (c) actually controls in this case since this settlement provides for both an award of coupons and modest equitable relief. Subsection (c) allows a combination of percentage-of-coupons-used and lodestar, but it does not require that any portion of the fee be based on the percentage of coupons used. Subsection (c) allows the district court the same discretion to use lodestar for the entire award that is permitted under (b). In coupon settlements that include some non-coupon relief, therefore, § 1712 allows three approaches to calculating attorney fees. First, a court may rely solely on the percentage-of-recovery method as permitted in subsection (a). Second, a court may rely solely on the lodestar method as permitted in subsection (b). Third, a court may use a combination of the approaches as provided in subsection (c).
One basic tool in statutory interpretation is the canon against surplusage. E.g., Marx v. General Revenue Corp., 568 U.S. ___, 133 S.Ct. 1166, 1178, 185 L.Ed.2d 242 (2013). We believe it weighs in favor of giving the district court discretion to use the lodestar method here.
Under Markow's approach, also adopted by the Ninth Circuit majority in HP Inkjet, subsection (c) seems to become surplusage. If subsection (a) requires use of percentage-of-coupons-used for any fee award based on coupons, and if subsection (b) requires use of lodestar for non-coupon relief, as Markow argues, that leaves nothing for subsection (c) to do other than repeat subsection (a) and (b). "[T]he canon against surplusage is strongest when an interpretation would render superfluous another part of the same statutory scheme." Marx, 133 S.Ct. at 1178.
The approach we adopt, also taken by the district court and by Judge Berzon in HP Inkjet, gives all three subsections different roles to play. Subsection (a) prohibits basing a percentage-of-recovery fee on the face value of all coupons made available. Subsection (b) says that lodestar is the only permissible alternative to percentage-of-coupons-used. And subsection (c) allows, though does not require, a blend of the two methods when a coupon settlement also provides some equitable or cash relief.
We hold that § 1712 permits a district court to use the lodestar method to calculate attorney fees to compensate class counsel for the coupon relief obtained for the class. When a district court considers using the lodestar method in this manner, it will need to bear in mind the potential for abuse posed by coupon settlements and should evaluate critically the claims of success on behalf of a class receiving coupons, as Judge Kennelly did here.
The district court approved this settlement after finding it fair and reasonable for the class. On appeal we review that approval for an abuse of discretion, though we have said many times that we expect district courts to scrutinize such settlements carefully in light of the conflicts of interest inherent in class litigation. See, e.g., Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 652-53 (7th Cir.2006). We begin by addressing two issues raised by the structure of the settlement and then turn to counsel's cross-appeal on the amount of attorney fees. We find no abuse of discretion in the district court's handling of these matters.
No party disputes the adequacy of class relief. This is not a case where coupons of dubious value will be provided to compensate for a loss of cash. The class lost the value of drink coupons. The settlement provides replacement drink coupons, on a one-for-one basis. The claims process is easy, and the replacement coupons will remain valid for one year. There is also a happy alignment of interests between class members and Southwest. Southwest has no incentive to insist on a stringent claims process. Every replacement coupon can be used only by a customer who buys a plane ticket. Southwest should benefit from every one that is actually used. Such benefits for a defendant under a coupon settlement are usually a reason for caution if not skepticism. This case is different, though, because Southwest would have received the same benefits from the old coupons.
Serendipitous or not, such essentially complete relief for the class is the model of an adequate settlement. The class members will receive everything they reasonably could have hoped for. While some replacement coupons might never be used, the same could be said of the original coupons. Nevertheless, the objectors argue the settlement is unfair in two ways. The first focuses on the ratio of class relief to attorney fees in this case. The second focuses on the clear-sailing and kicker clauses in the fee agreement.
The objectors argue first that Southwest's willingness to pay up to $3,000,000 in cash to class counsel — after agreeing on coupon relief for the class members — shows that the negotiated class settlement short-changed the class by leaving money on the table. Much of that value, argue the objectors, should have gone to the class.
In most cases this would be a powerful argument. Separating the negotiations over class relief and attorney fees does not remove the possibility that counsel will negotiate for their own benefit at the expense of the class. "In other words, the negotiation of class counsel's attorneys' fees is not exempt from the truism that there is no such thing as a free lunch." Staton v. Boeing Co., 327 F.3d 938, 964 (9th Cir.2003).
Judicial scrutiny of class action fee awards and class settlements more generally is based on the assumption that class counsel behave as economically rational actors who seek to serve their own interests first and foremost, particularly in classes certified under Rule 23(b)(3) that seek primarily monetary relief. See Eubank v. Pella Corp., 753 F.3d 718, 719-20 (7th Cir.2014). While that assumption may not hold in all cases, conflicts of interest are inherent in class action suits. Redman v. RadioShack Corp., 768 F.3d 622, 629 (7th Cir.2014).
While this argument often has considerable force, it has little force here. What makes this settlement so distinctive, and what has eased both the district court's and our concerns about the risk of self-dealing by class counsel, is that the class members will receive essentially everything they could have hoped for. As the district court put it, "the class members are getting back exactly what they had before, an unexpired drink voucher." In re Southwest Airlines Voucher Litig., No. 11 C 8176, 2013 WL 5497275, at *4 (N.D.Ill. Oct. 3, 2013). It is an exceptional settlement that actually makes the class whole. When counsel come away from the negotiating table with everything the client could hope for, they should be compensated accordingly. That is what happened in this case. No class members have legitimate or even plausible claims to more than they will receive under the settlement.
Objectors argue, though, that the class was not actually made whole since it did not recover for its unjust enrichment and statutory claims. As noted, these claims were dismissed early in the litigation because they are preempted by the Airline Deregulation Act, 49 U.S.C. § 41713, a principle which is well established by Supreme Court decisions. See Northwest, Inc. v. Ginsberg, 572 U.S. ___, 134 S.Ct. 1422, 1426, 188 L.Ed.2d 538 (2014) (statelaw claim for breach of covenant of good faith and fair dealing was preempted); American Airlines, Inc. v. Wolens, 513 U.S. 219, 221-22, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995) (consumer fraud claims were preempted, but breach of contract claims were not); Morales v. Trans World Airlines, Inc., 504 U.S. 374, 391, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992) (general consumer protection statutory claims were preempted as applied to airline fare advertisements). Class members could not reasonably have hoped to recover for these meritless claims, and the district court appropriately gave them no weight in evaluating the fairness of the settlement.
The settlement agreement between Southwest and the class also includes so-called "clear-sailing" and "kicker" clauses. Southwest agreed not to contest a fee request not exceeding $3 million (clear-sailing), and any reduction from the requested fee (roughly $1.35 million in this case) benefits Southwest rather than the class (the kicker). The Ninth Circuit has called these clauses "subtle signs" of settlement unfairness. In re Bluetooth Headset Products Liab. Litig., 654 F.3d 935, 947 (9th Cir.2011).
We have used stronger language lately, expressing deep skepticism about such clauses, which seem to benefit only class counsel and can be signs of a sell-out. See Redman, 768 F.3d at 637; Pearson v. NBTY, Inc., 772 F.3d 778, 786-87 (7th Cir.2014). Clear-sailing and kicker clauses weigh substantially against the fairness of a settlement and call for "intense critical scrutiny by the district court." Redman, 768 F.3d at 637.
Like the Ninth Circuit, however, we have stopped short of holding that clear-sailing and kicker clauses are per se bars to settlement approval. We again stop short of that per se rule. The possibility
Southwest Airlines was willing to pay a fee of up to $3,000,000 without objection. Class counsel argue that the district court abused its discretion by awarding the lower amount of $1.65 million rather than deferring to the amount agreed in the negotiations between Southwest and class counsel. Judicial deference to the results of private negotiations is undoubtedly appropriate for many settlements, but not for class action settlements, including their attorney fee terms. "That the defendant in form agrees to pay the fees independently of any monetary award or injunctive relief provided to the class in the agreement does not detract from the need carefully to scrutinize the fee award." Staton, 327 F.3d at 964; see also Eubank, 753 F.3d at 719-20.
The district judge carefully applied the lodestar method, as described above. In doing so the judge accommodated the most reasonable points raised by class counsel and increased the initial fee award. The court did not abuse its discretion in awarding $1.65 million using the lodestar method.
Finally, the objectors assert that the settlement class should not have been certified because one of the four Rule 23(a) requirements for class certification — "the representative parties will fairly and adequately
The objectors urge us to take up this issue for the first time on appeal. Class counsel deferred to Southwest to address the issue. Southwest argued that any conflict as to Levitt does not matter because plaintiff Malone adequately represented the class, and that the objectors waived their objection to Levitt's conflict of interest because they should have used Pacer or Google to discover the relationship between Siprut and Levitt before this appeal.
As a general rule, we have a strong aversion to considering issues on appeal that were not raised in the district court, at least if the issue does not control subject-matter or appellate jurisdiction. The general rule helps ensure orderly and fair process so that litigants are not "surprised on appeal by final decision there of issues upon which they have had no opportunity to introduce evidence." Niedert v. Rieger, 200 F.3d 522, 527 (7th Cir.1999), quoting Hormel v. Helvering, 312 U.S. 552, 556, 61 S.Ct. 719, 85 L.Ed. 1037 (1941). While we have discretion to decide issues of law not argued in the district court, see Dechert v. Cadle Co., 441 F.3d 474, 476 (7th Cir.2006), that discretion should be used sparingly.
The conflict of interest issue here presents a rare instance where it makes sense for us to consider an issue not raised in the district court, so we reject the waiver argument. Siprut and Levitt should have disclosed their relationship to the district court. Class members were not obliged, on penalty of waiver, to search on their own for a conflict of interest on the part of a class representative.
In most cases, class members can expect a defendant like Southwest Airlines to test the adequacy of a class representative, with the district court as a backstop to protect them. In this case, however, class counsel and class representatives reached the settlement with Southwest before class certification, so Southwest lost its incentive to challenge the adequacy of class representation. In addition, class members like the objectors should be able to expect class counsel and class representatives to disclose such prior professional, financial, personal, or other relationships between class counsel and a class representative that could reasonably be thought relevant to the ability of the representative to act on behalf of the class, if need be by disagreeing with class counsel. See Eubank v. Pella Corp., 753 F.3d 718, 721-22 (7th Cir.2014) (rejecting class representative who was father and father-in-law of class counsel); Susman v. Lincoln American Corp., 561 F.2d 86, 90, 95 (7th Cir. 1977) (rejecting class representative who was member of class counsel's law firm and another who was brother of class counsel).
One foundation of class action law is that the class representative has an obligation to represent the interests of the class in dealings with both the defendant and class counsel. E.g., Crawford v. Equifax Payment Servs., 201 F.3d 877, 880, 882 (7th Cir.2000). Class representatives need to be capable of saying no if they believe counsel are failing to act in the best interests of the class. Accordingly, one purpose of the adequacy inquiry under Rule 23(a)(4) is "to uncover conflicts of interest between named parties and the class they
The adequacy of class representatives is an issue that can be examined throughout the litigation. Susman, 561 F.2d at 89-90 ("Basic consideration of fairness require[s] that a court undertake a stringent and continuing examination of the adequacy of representation by the named class representatives at all stages of the litigation where absent members will be bound by the court's judgment."), quoting National Ass'n of Regional Medical Programs v. Mathews, 551 F.2d 340, 344-45 (D.C.Cir.1976). In these appeals, the issue has been aired adequately for us to address it, and we think the best course is simply to resolve it without further delay.
This class has been represented adequately, at least by plaintiff Malone. We base this conclusion on the recurring theme of this opinion, the unusual degree of success for the class in the settlement. A remand for decertification or further exploration of the issue would not benefit the class but would only delay it from receiving full compensation under this settlement. The class has been made whole and class counsel have earned their fees by achieving that result for the class, so the settlement approval should be affirmed. The failure to disclose the relationship by Siprut and Levitt should be addressed in another way.
Siprut and Levitt both know they are fiduciaries for the class. They should have known to disclose their relationship and the potential conflict it posed. See Eubank, 753 F.3d at 723 ("Class representatives are ... fiduciaries of the class members, and fiduciaries are not allowed to have conflicts of interest without the informed consent of their beneficiaries"). The professional and financial relationship between Siprut and Levitt should have been disclosed to the district court. See, e.g., Jaroslawicz v. Safety Kleen Corp., 151 F.R.D. 324, 328 (N.D.Ill.1993) (denying class certification where named plaintiff served as co-counsel with class counsel in numerous other cases).
In affirming a district court decision denying class certification we have implicitly rejected the proposition that "a showing of actual danger of conflict of interest rather than the mere possibility of a conflict of interest is required to support a finding that a fiduciary will not adequately represent the interest of others." Susman, 561 F.2d at 89. In that same case we also "decline[d] to adopt a per se analysis" of conflicts of interest in this context. Id. at 93-94.
We think it is clear that Siprut and Levitt were laboring under at least a potential conflict of interest that should have been disclosed to the district court and other interested parties. The fact that Siprut's relationship with Levitt was divulged during a deposition does not suffice.
If there were indications that the class had been adversely affected by this failure to disclose, the consequences would be more severe. See Eubank, 753 F.3d at 729 (lamenting "eight largely wasted years" of litigation and how much more still needed to be done in part due to the need to replace the lead plaintiffs). Our message to the class action bar is short and simple: when in doubt, disclose. In this rare case, however, where the class is receiving full compensation under the settlement agreement, a more modest response is appropriate.
Plaintiff Levitt should not receive a $15,000 incentive award. His failure to disclose was an important failure in protecting the interests of the class. For the same reason, Siprut's fee should be reduced by the same amount.
Accordingly, we modify the district court's judgment to eliminate the $15,000 incentive award for plaintiff Levitt and to reduce the fee award by $15,000, which should be taken from Siprut's individual share of the fee award. As modified, the judgment of the district court is AFFIRMED.
Corrected Principal and Response Br. of Plaintiffs-Appellees at 15.
The ellipsis put together parts of two sentences — separated by no fewer than 1,150 words! — to reverse the true meaning. The first sentence, quoted in full, says exactly the opposite of what class counsel claimed: "That the defendant in form agrees to pay the fees independently of any monetary award or injunctive relief provided to the class in the agreement does not detract from the need carefully to scrutinize the fee award." 327 F.3d at 964 (emphasis added). The material counsel quoted after the ellipsis appears more than two published pages after the phrase before the ellipsis. And in context the later phrase again bore a very different meaning:
327 F.3d at 966. Finally the brief's assertion that the Ninth Circuit said the issue was whether the fee is "facially" fair and reasonable is baseless.
