United States District Court, C.D. California, Southern Division
TERRI N. WHITE, , Plaintiffs,
EXPERIAN INFORMATION SOLUTIONS, , Defendants.
AMENDED ORDER DENYING MOTION TO DISQUALIFY , DENYING MOTION TO APPOINT INTERIM CLASS COUNSEL , AND GRANTING CROSS-MOTION TO APPOINT INTERIM CLASS COUNSEL 
DAVID O. CARTER, District Judge.
Before the Court is the Motion to Disqualify Hernandez Counsel (Dkt. 875) and Application to Serve as Interim Class Counsel (Dkt. 878) filed by Plaintiffs Terri N. White, , and a Cross-Motion to Appoint Interim Class Counsel (Dkt. 885) filed by Jose Hernandez, The Court heard oral argument on these matters on August 14, 2013. After considering the moving and opposing papers and the arguments of counsel, the Court hereby DENIES the Motion to Disqualify (Dkt. 875), DENIES White Plaintiffs' Motion to Appoint Interim Counsel (Dkt. 878), and GRANTS Hernandez's Cross-Motion to Appoint Interim Class Counsel (Dkt. 885).
I. Factual and Procedural Background
a. Initiation of the Lawsuit
The instant lawsuit is an amalgamation of several separate suits filed in 2005 and 2006. The White lawsuit began with Charles Juntikka and Daniel Wolf, who noticed and recorded problems with Mr. Juntikka's bankruptcy clients' credit reports. Five of these clients eventually became lead plaintiffs: Maria Falcon, Chester Carter, Arnold Lovell, Jr., Clifton C. Seale, III, and Robert Radcliffe (collectively, "White Plaintiffs"). In October 2005, Mr. Juntikka and Mr. Wolf recruited Lieff, Cabraser, Heimann, & Bernstein, LLP ("Lieff Cabraser") to prosecute the White Plaintiffs' claims as a class action. The White case was then consolidated with a parallel class action in the Northern District of California in which Jose Hernandez was the named plaintiff. The law firm Caddell & Chapman, P.C. ("Caddell") represented Hernandez, as did attorney Leonard Bennett. The cases were consolidated and jointly prosecuted in the Central District of California, along with three other related cases. Caddell and Lieff Cabraser also authorized the National Consumer Law Center to appear on behalf of both plaintiffs. See First Decl. of William B. Rubenstein ("First Rubenstein Decl.") (Dkt. 621) ¶ 13. The Lieff-Caddell team ("Settling Counsel") became lead counsel in the consolidated law suit.
In the consolidated lawsuit, Plaintiffs Jose Hernandez, Kathryn Pike, Robert Randall and Bertram Robison (collectively, "Settling Plaintiffs") brought suit against Defendants Experian Information Solutions, Inc. ("Experian"), Equifax Information Services, LLC ("Equifax") and Trans Union, LLC ("Trans Union") (collectively, "Defendants"). The suit alleged that Defendants had recklessly and/or negligently violated-and were continuing to recklessly and/or negligently violate-the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. §§ 1681 et seq. Plaintiffs claimed that the credit-reporting agencies issued credit reports that inaccurately listed outstanding debts that were discharged in bankruptcy. A subset of the plaintiffs also claimed that Defendants did not adequately investigate the errors even after consumer disputes over the status of the discharged debts. Plaintiffs brought causes of action for (i) willful and/or negligent violation of Section 1681e(b) of the FCRA and its California counterpart, California Civil Code Section 1785.14(b), (ii) willful and/or negligent violation of Section 1681i of the FCRA and its California counterpart, California Civil Code Section 1785.16, and (iii) violation of California Business & Professions Code Section 17200 et seq.
b. Litigation and Settlement
The parties briefed motions for class certification and summary judgment. At the hearing on class certification, the Court issued a tentative order denying certification. See Minutes of Motion Hearing Re: Motions to Certify Class, January 26, 2009 (Dkt. 369); Tentative Order (Dkt. 369-2). The parties entered mediation on August 15, 2007. The mediation process was exhaustive, including seven in-person sessions with mediator Hon. Lourdes Baird (Ret.), five in-person sessions with mediator Randall Wulff, and various other in-person and telephonic meetings involving counsel for the parties.
In August 2008, the parties reached an injunctive relief settlement. The Court approved that settlement on August 19, 2008. See Approval Order Regarding Settlement Agreement and Release, Aug. 19, 2008 (Dkt. 338). The injunctive relief settlement contained far-reaching relief for the class, including retrospective changes to class members' credit reports as well as new procedures going forward. No one objected to the injunctive relief settlement.
On February 5, 2009, the parties reached a monetary settlement. The settlement created a $45 million award fund inclusive of fees and costs, with $15 million to be contributed by each defendant. After administrative costs, class members able to demonstrate actual harm would receive "actual-damage awards." When this Court approved the settlement, there were roughly 15, 000 Actual Damages Awards claimants: 2, 141 claimants who were denied employment and were therefore eligible for a minimum award of $750; 5, 593 claimants who were denied a mortgage or housing rental and were therefore eligible for a $500 minimum award; and 7, 600 claimants who were denied credit or auto loans and were therefore eligible for a $150 minimum award. Decl. of J. Keough Re Final Report of Supp. Claims, May 2, 2011 ("May 2, 2011 Keough Decl.") (Dkt. 751) ¶ 8.
Class members unable to show actual damages could apply for a Convenience Award, requiring only that they file an attestation that they believe they are members of the class. At the time the Court approved the settlement, roughly 754, 783 class members had submitted a claim for a Convenience Award. Id. This would have yielded a recovery of roughly $26.78 per Convenience Award claimant. Id. Following these distributions, the Settling Fund was to pay the class representatives and class counsel.
Settling Counsel informed the White Plaintiffs of the settlement on February 6, 2009. First Decl. of Charles Juntikka, Esq. Ex. A ("First Juntikka Decl.") (Dkt. 555) ¶ 4. White Plaintiffs objected to the monetary relief settlement. See First Juntikka Decl. Ex. J. Among the objections asserted was "that the Settlement would release the meritorious claims of each member of three separate 10 to 15 million-member classes for an award averaging less than 1% of the $100 statutory minimum to which they were entitled." Motion to Disqualify Counsel at 3.
On April 16, 2009, Settling Counsel added a provision to the draft settlement that required Settling Counsel to "file an application or applications to the Court for an incentive award, to each of the Named Plaintiffs serving as class representatives in support of the Settlement, and each such award not to exceed $5, 000." Second Decl. of Charles Juntikka, Esq. ("Second Juntikka Decl.") (Dkt. 877) Ex. A at 5. White Plaintiffs objected to the incentive award provision, arguing that it created a conflict of interest for Settling Counsel and any settling representatives by setting the interests of the named plaintiffs and the absent class members at odds. This Court approved the monetary settlement with the incentive provision on July 15, 2011. White v. Experian Info. Solutions, Inc., 803 F.Supp.2d 1086, 1090-91 (C.D. Cal. 2011) rev'd and remanded sub nom. Radcliffe v. Experian Info. Solutions Inc., 715 F.3d 1157 (9th Cir. 2013).
c. Appeal and Ninth Circuit Opinion
On appeal, the Ninth Circuit reversed and vacated the settlement. Radcliffe v. Experian, 715 F.3d 1157 (9th Cir. 2013). The Ninth Circuit held that the incentive awards rendered the class representatives who signed onto the settlement inadequate under Rule 23(a)(4). Id. at 1165. The Circuit further held that "the class representatives' lack of adequacy-based on the conditional incentive awards-also made class counsel inadequate to represent the class." Id. at 1167. Applying California law, the Court held that "[a]s soon as the conditional-incentive-awards provision divorced the interests of the class representatives from those of the absent class members, class counsel was simultaneously representing clients with conflicting interests, " without a waiver. Id. In light of this conflict, the Court determined that Settling Counsel was "not adequate and could not settle the case on behalf of the absent class members." Id.
The Circuit vacated the class settlement, including costs and fees, and remanded for further proceedings. The Circuit directed this Court on remand to determine: "when the conflict arose, if the conflict continues under any future settlement agreement, and how the conflicted representation should affect any attorneys' fees awards." Id. at 1168. The Circuit further noted that this Court must address whether "the subset of class counsel who brought the Acosta and Pike suits, which were consolidated with this case, faced an independent conflict of interest because of the fee-sharing agreement they executed with the rest of class counsel." Id. at 1168 n.6. Most of these issues are not ripe for resolution on the current motions.
On June 19, 2013, White Counsel filed the instant Motion to Disqualify Hernandez Counsel (Dkt. 875) and Application to Serve as Interim Class Counsel (Dkt. 878). Settling Counsel filed an Opposition to the Motion to Disqualify (Dkt. 884) and filed a Response to Motion to Appoint Interim Counsel with a Cross-Motion to appoint the Settling Counsel as interim class counsel (Dkt. 885). The Court heard oral argument on these matters on August 14, 2013.
II. Motion to Disqualify Settling Counsel
White Counsel move to disqualify Settling Counsel under California law. White Counsel argue this disqualification is mandatory. Settling Counsel respond that disqualification is not mandatory and is not warranted. The Court agrees with Settling Counsel on both issues.
As an initial matter, however, the Court disagrees with Settling Counsel that the Ninth Circuit already decided this issue. Settling Counsel do not identify whether their argument is based on a form of preclusion, the law of the case, or the rule of mandate, and so it is difficult to evaluate this claim fully. It appears to the Court that the disqualification issue was referenced in the briefs before the Ninth Circuit, but the question was not actually raised to the panel. See Opp'n (Dkt. 886) Ex. 1 at 26-35. Even if the disqualification issue had been raised, the Circuit made no holding on the question in its opinion. See 18B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure Jurisdiction § 4478 (2d ed.) (footnotes omitted) ("[D]ecision of one issue does not ordinarily imply decision of another, and failure to respond to a position taken in dissent does not imply a decision contrary to the dissent."). Settling Counsel makes no convincing argument that this issue was somehow implicitly decided. See Thomas v. Bible, 983 F.2d 152, 154 (9th Cir. 1993). Therefore, the Court proceeds to resolve the disqualification question in the first instance.
a. Identifying the Correct Legal Standard: Automatic Disqualification or Balancing the Interests?
The Court first must address Counsels' disagreement over whether California's automatic disqualification rule applies.
i. California Law Governs
In cases considering conflicts of interest in attorney representation, the Ninth Circuit refers to the local rules of the district to determine what standards govern an ethical violation. See Rodriguez v. W. Publ'g Corp. (Rodriguez I), 563 F.3d 948, 967 (9th Cir. 2009) ("By virtue of the district court's local rules, California law controls whether an ethical violation occurred."); Image Technical Serv., Inc. v. Eastman Kodak Co., 136 F.3d 1354, 1357 (9th Cir. 1998) (citing N.D. Cal. Local Rule 110-3) ("[S]tandards of professional conduct in the Northern District are those of California Rules of Professional Conduct."); Paul E. Iacono Structural Eng'r, Inc. v. Humphrey, 722 F.2d 435, 439 (9th Cir. 1983) ("In the absence of rules promulgated by higher authorities in the judicial system, the district courts are free to regulate the conduct of lawyers appearing before them.").
The Central District of California's Local Rule 83-3.1.2 identifies "the standards of professional conduct required of members of the State Bar of California and contained in the State Bar Act, the Rules of Professional Conduct of the State Bar of California, and the decisions of any court applicable thereto" as the "standards of professional conduct" in the district. C.D. Cal. R. 83-3.1.2. Thus, California law governs our analysis in this case. "[B]ecause 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 Cnty. of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000). But see Rodriguez v. Disner (Rodriguez II), 688 F.3d 645, 656 n.7 (9th Cir. 2012) (citing C.D. Cal. R. 83-3.1.3) ("However, the decision whether to sanction or impose other discipline is a question of federal law.").
ii. Automatic Disqualification is the Default Rule
Next, the Court must determine the proper analysis for a concurrent conflict in the class action context. White Counsel argue that the proper rule is automatic disqualification, while Settling Counsel argue that the rule is a balancing test.
The Ninth Circuit held that Settling Counsel violated California Rule of Professional Conduct 3-310(C) because the incentive agreements made the class representatives' interests diverge from those of the absent class plaintiffs, putting counsel in the position of representing two clients with opposing interests without a waiver. Radcliffe, 715 F.3d at 1167. Rule 3-310(C) addresses two forms of conflict involving representation of multiple clients with adverse interests: representing two clients with adverse interests simultaneously, and representing a client when a lawyer has obtained confidential information from a former client that is relevant to the current action. Cal. Rules of Prof. Conduct 3-310(C), (E). The incentive provisions created a question of actual concurrent conflict under 3-310(C)(2).
The default rule for a concurrent conflict in California is automatic disqualification in all but a small number of cases. See Blue Water Sunset, LLC v. Markowitz, 192 Cal.App.4th 477, 486-87 (2011) ("If an attorney simultaneously represents two clients with adverse interests, automatic disqualification is the rule in all but a few instances."). The disqualification rule in the case of a concurrent conflict is strict and requires disqualification in nearly every case. See People ex rel. Dep't of Corporations v. SpeeDee Oil Change Sys., Inc., 20 Cal.4th 1135, 1147 (1999) (noting that when a lawyer represents "clients whose interests are directly adverse in the same litigation... the rule of automatic disqualification applies"); Flatt v. Superior Court, 9 Cal.4th 275, 282-85 (1994) ("Indeed, in all but a few instances, the rule of disqualification in simultaneous representation cases is a per se or automatic' one.").
Settling Counsel argue that the default rule is a balancing test using general principles of California disqualification law, under which disqualification is discretionary. California law does provide a set of broad principles for courts to apply when considering motions to disqualify. California law states, for example, that the power to disqualify is discretionary, and should depend on the specific circumstances of each case. See Oaks Mgmt. Corp. v. Superior Court, 145 Cal.App.4th 453, 462 (2006); William H. Raley Co. v. Superior Court, 149 Cal.App.3d 1042, 1048 (1983). California law directs courts to weigh several factors to make this determination. See Raley, 149 Cal.App.3d at 1048. California law also generally disfavors motions to disqualify. Sharp v. Next Entm't, Inc., 163 Cal.App.4th 410, 424 (2008). Settling Counsel argue that the balancing test described by these general principles is the rule the Court should apply to the conflict in question.
However, these broad disqualification principles give way to narrower, more specific rules in the case of attorney-client conflicts. Case law addressing concurrent conflicts under Rule 3-310(C) cite these general principles as a preface to the more specific rules governing conflicts. See Visa U.S.A., Inc. v. First Data Corp., 241 F.Supp.2d 1100, 1104 (N.D. Cal. 2003) (describing legal standard for motions to disqualify and then stating that under Rule 3-310(C), "[w]hen evaluating whether a law firm may concurrently represent two clients... it is presumed that the duty of loyalty has been breached and counsel is automatically disqualified."); SpeeDee Oil, 20 Cal.4th at 1145-48 (reviewing general disqualification rules before articulating the automatic disqualification rule in the case of a concurrent attorney-client conflict); Oaks Mgmt. Corp, 145 Cal.App.4th at 463-64 (discussing general principles as a preface to describing the specific rules for concurrent and successive representation). General principles may govern the majority of disqualification issues, but they yield to narrower rules when an attorney-client conflict is at issue. When that conflict is a concurrent conflict, automatic disqualification is the governing rule. Whether that rule also governs class action conflicts and this case, however, is a different question.
iii. Whether Automatic Disqualification Applies in This Case
Although the default rule for concurrent conflicts is clear in traditional litigation, it is less clear that the same standard should apply in class action cases. The case law is mixed in the class action context, and the cases interpreting Rule 3-310(C) are not factually similar to our situation. Settling Counsel argue that the automatic disqualification rule should not apply in class action cases, and that the Court should instead adopt a liberal application of conflict rules in the class action context. See Lazy Oil Co. v. Witco Corp. 166 F.3d 581, 589 (3d Cir. 1999) (quoting Bruce A. Green, Conflicts of Interest in Litigation: The Judicial Role, 65 Fordham L. Rev. 71, 127 (1996)) ("Moreover, the conflict rules do not appear to be drafted with class action procedures in mind and may be at odds with the policies underlying the class action rules."); In re "Agent Orange" Prod. Liab. Litig. 800 F.2d 14, 19 (2d Cir. 1986) ("Thus, we conclude 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."); In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 165 (3d Cir. 1984) (Adams, J., concurring) ("Similarly, although the importance of maintaining client confidences cannot be minimized, a rigid prophylactic rule' in the area of client confidentiality in class actions would appear to be inappropriate."). White Counsel disagree and argue that automatic disqualification applies.
1. Legal Context
Because the proper application of California law is unclear in this case, the Court conducts a brief review of relevant ...