Going through bankruptcy is traumatic enough; doing so and still having your credit report still list your discharged debts as "delinquent" is enough to drive some people to litigation. And that's how several credit agencies found themselves on the receiving end of a series of Fair Credit Reporting Act class actions.

In this case, the defendants settled, offering the plaintiffs injunctive relief and some pro-rated monetary relief, as well as paying attorneys fees and some incentive awards for the named plaintiffs.

The settlement drew objections, however, including from advocacy group Public Justice. The trial court approved the settlement nonetheless, but on appeal, in Radcliffe v. Experian Info Solutions Inc., the Ninth Circuit Court of Appeals vacated the settlement. The problem, it held, was the incentive award agreement:

On or before October 19, 2009, Proposed 23(b)(3) Settlement Class Counsel shall 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 $5,000.00.

(Emphasis added.) Based on both the agreement and testimony at the fairness hearing, it was clear that the incentive provision was supposed to encourage the named plaintiffs to support the settlement. That, the court held, was a conflict of interest that rendered the named plaintiffs inadequate as class representatives.

But the court also expressed concern about the disparity in the size of the incentive awards, stating that this alone might be reason enough to disqualify the plaintiffs as inadequate:

There is a serious question whether class representatives could be expected to fairly evaluate whether awards ranging from $26 to $750 is a fair settlement value when they would receive $5,000 incentive awards. Under the agreement, if the class representatives had concerns about the settlement's fairness, they could either remain silent and accept the $5,000 awards or object to the settlement and risk getting as little as $26 if the district court approved the settlement over their objections. The conditional incentive awards at issue here, like the disproportionately large awards in Staton, fatally alter the calculus for the class representatives, pushing them to be "more concerned with maximizing [their own gain] than with judging the adequacy of the settlement as it applies to class members at large."

(Emphasis added.)

Finally, the court also held that the provision meant that class counsel was not adequate to represent the class, because there were representing conflicting parties: the named plaintiffs who would receive the incentive award and the absent class members who would not.

Radcliffe appears to be part of a growing trend of courts of appeal watching out for the interests of absent class members. And that makes for an important takeaway: if the settling parties don't protect the absent class members, the courts will step in to do so.