The Ninth Circuit Court of Appeals has thrown out a settlement in a case alleging that three leading credit reporting companies had disseminated incorrect information about consumers who had declared bankruptcy.
The suit, which originated as multiple actions in 2005 and 2006, alleged that Experian, Equifax, and TransUnion issued credit reports that claimed consumers had been delinquent in paying down certain debts. In reality, the suit alleged, those debts had been discharged during bankruptcy proceedings. The allegedly erroneous information would constitute a violation of the Fair Credit Reporting Act (FCRA), a federal statute.
The court ruled that the settlement -- which totaled $45 million -- “created a patent divergence of interests between the named representatives and the class” and thus should not have been approved by the district court.
The settlement offered “incentive awards” to the named plaintiffs in the suit. This is common in class action suits, since those individuals typically spend considerable time helping lawyers prosecute the action.
However, the court ruled that, in this case, “these awards were conditioned on the class representatives’ support for the settlement,” which “caused the interests of the class representatives to diverge from the interests of the class because the settlement agreement told class representatives that they would not receive incentive awards unless they supported the settlement.”
The settlement offered “actual damage awards” to class members who could show that they suffered harm from the agencies’ alleged conduct. Class members who were denied housing would receive $500; those who could not obtain car or credit loans would receive $150; and those who were denied employment would receive $750.
Class members who did not suffer economic damage were set to receive a “convenience award” of around $26.
Lawyers plan to rewrite settlement
The settlement would have been the second-largest ever reached in an FCRA suit, according to plaintiffs’ counsel Michael Caddell of Caddell and Chapman.
"Obviously we're disappointed," Caddell told Thomson Reuters. "We didn't believe the settlement agreement was coercive, and the facts were undisputed that our class representatives had decided months before the language was drafted to support it.
Caddell said he planned to rewrite the settlement.