FOR PUBLICATION
`
`UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`
`ROBERT BRISEÑO; CHRISTI TOOMER;
`KELLY MCFADDEN; JANETH RUIZ;
`BRENDA KREIN; ALEXIS JUSTAK;
`LEONORA ULITSKY; ANNE COWAN;
`JULIE PALMER; PATTY BOYER;
`NECLA MUSAT; PAULINE MICHAEL;
`RONA JOHNSTON; CHERI SHAFSTALL;
`JILL CROUCH; ERIKA HEINS;
`MAUREEN TOWEY; MICHELE
`ANDRADE; ANITA WILLMAN; DEE
`HOPPER-KERCHEVAL; LIL MARIE-
`BIRR, individually and on behalf of
`all others similarly situated,
`Plaintiffs-Appellees,
`
` No. 19-56297
`
`D.C. No.
`2:11-cv-05379-
`CJC-AGR
`
`
`OPINION
`
`
`
`v.
`
`
`M. TODD HENDERSON,
`Objector-Appellant,
`
`
`
`v.
`
`
`CONAGRA FOODS, INC.,
`Defendant-Appellee.
`
`Appeal from the United States District Court
`for the Central District of California
`Cormac J. Carney, District Judge, Presiding
`
`
`

`

`BRISEÑO V. HENDERSON
`
`Argued and Submitted December 7, 2020
`Pasadena, California
`
`Filed June 1, 2021
`
`Before: John B. Owens and Kenneth K. Lee, Circuit
`Judges, and David A. Ezra,* Senior District Judge.
`
`Opinion by Judge Lee
`
`
`SUMMARY**
`
`
`Class Action Settlements
`
`2
`
`
`
`
`
`The panel reversed the district court’s approval of a class
`
`action settlement in an appeal brought by a class member
`Objector in a diversity action where the class alleged that
`ConAgra Foods, Inc. used a misleading “100% Natural”
`label on Wesson Oil.
`
`The panel held that the class settlement agreement raised
`
`a squadron of red flags that required further review. The
`panel held further that under the newly revised Fed. R. Civ.
`P. 23(e)(2) standard, courts must scrutinize settlement
`agreements – including post-class certification settlements –
`for potentially unfair collusion in the distribution of funds
`between the class and their counsel.
`
`
`* The Honorable David A. Ezra, Senior United States District Judge
`for the Western District of Texas, sitting by designation.
`
`** This summary constitutes no part of the opinion of the court. It
`has been prepared by court staff for the convenience of the reader.
`
`

`

`3
`
`BRISEÑO V. HENDERSON
`
`
`
`The panel held that the district court erred by failing to
`
`apply
`the newly revised Fed. R. Civ. P. 23(e)(2).
`Specifically, the panel held that under the newly revised
`Rule 23(e)(2), courts must apply the heightened scrutiny in
`In re Bluetooth Headset Products Liability Litigation, 654
`F.3d 935 (9th Cir. 2011), to post-class certification
`settlements in assessing whether the division of funds
`between the class members and their counsel was fair and
`adequate. The panel held further that district courts must
`apply the Bluetooth factors to scrutinize fee arrangements to
`determine if collusion may have led to class members being
`shortchanged. The panel concluded that the class settlement
`here featured all three red flags of potential collusion that
`was noted in Bluetooth: plaintiffs’ counsel received a
`disproportionate distribution of the settlement; the parties
`agreed to a “clear sailing arrangement” in which ConAgra
`agreed not to challenge the agreed-upon fees for class
`counsel; and the agreement contained a “kicker” or
`“reverter” clause in which ConAgra, not the class members,
`received the remaining funds if the court reduced the agreed-
`upon attorneys’ fees.
`
`The panel held that the district court erred by failing to
`
`approximate the value of the settlement’s injunction.
`Specifically, the panel held that it was reversible error when
`the district court, rather than attempting to quantify the value
`of the injunctive relief, instead concluded that it had “some”
`value. The panel held further that the district court erred by
`placing even “some value” on the injunction because it was,
`and is, virtually worthless.
`
`The panel next addressed – and rejected – appellees’
`
`argument that the Erie doctrine precluded the application of
`Rule 23(e)(2) to a class settlement where state substantive
`law governed attorney’s fees in fee shifting cases. In any
`
`

`

`BRISEÑO V. HENDERSON
`
`4
`
`event, the Objector challenged settlement fairness under
`Rule 23(e), rather than an award of attorney’s fees under
`Rule 23(h). Thus, Erie’s effect on fee-shifting law, if it even
`had one, was not implicated in this appeal.
`
`The panel held that the district court did not err by
`
`determining that the Objector failed to rebut its own
`conclusion that the settlement satisfied Rule 23(e)(2). The
`record demonstrated that the district court conducted its own
`independent analysis, and then considered, and dismissed,
`the Objector’s objections. The district court never
`improperly shifted to the Objector the burden of rebutting
`the settlement’s fairness, reasonableness, and adequacy at
`the fairness hearing.
`
`
`
`
`
`The panel remanded for further proceedings.
`
`COUNSEL
`
`
`Theodore H. Frank (argued) and Melissa A. Holyoak, Center
`for Class Action Fairness, Hamilton Lincoln Law Institute,
`Washington, D.C., for Objector-Appellant.
`
`Samuel Issacharoff (argued), New York, New York; Robert
`Klonoff, Portland, Oregon; Ariana J. Tadler, A.J. de
`Bartolomeo, and Brian R. Morrison, Tadler Law LLP, New
`York, New York; Adam J. Levitt and Amy E. Keller,
`DiCello Levitt Gutzler LLC, Chicago, Illinois; David Azar,
`Milberg Phillips Grossman LLP, Irvine, California; for
`Plaintiffs-Appellees.
`
`Angela M. Spivey (argued), Alston & Bird LLP, Atlanta,
`Georgia, for Defendant-Appellee.
`
`
`

`

`BRISEÑO V. HENDERSON
`
`5
`
`
`
`Mark Brnovich, Attorney General; Oramel H. Skinner,
`Solicitor General; Kate B. Sawyer, Assistant Solicitor
`General; Keena Patel, Assistant Attorney General; Office of
`the Attorney General, Phoenix, Arizona; Steve Marshall,
`Kevin G. Clarkson, Leslie Rutledge, Lawrence G. Wasden,
`Curtis T. Hill Jr., Daniel Cameron, Jeff Landry, Eric
`Schmitt, Dave Yost, Mike Hunter, Alan Wilson, and Ken
`Paxton, Attorneys General; as and for Amici Curiae
`Attorneys General of Arizona, Alabama, Alaska, Arkansas,
`Idaho, Indiana, Kentucky, Louisiana, Missouri, Ohio,
`Oklahoma, South Carolina, and Texas.
`
`
`
`OPINION
`
`LEE, Circuit Judge:
`
`We can perhaps sum up this case as “How to Lose a
`Class Action Settlement in 10 Ways.” The parties crammed
`into their settlement agreement a bevy of questionable
`provisions that reeks of collusion at the expense of the class
`members: Class counsel will receive seven times more
`money than the class members; an injunction touted by an
`expert as worth tens of millions of dollars appears worthless;
`the defendant agrees not to challenge the plaintiffs’
`attorneys’ fees amount; any reduction in those fees by the
`court reverts to the defendant; and on and on.
`
`While courts should not casually second-guess class
`settlements brokered by the parties, they should not
`greenlight them, either, just because the parties profess that
`their dubious deal is “all right, all right, all right.” We
`reverse the district court’s approval of the class settlement
`because the agreement raises a squadron of red flags
`billowing in the wind and begging for further review. We
`
`

`

`BRISEÑO V. HENDERSON
`
`6
`
`hold that under the newly revised Rule 23(e)(2) standard,
`courts must scrutinize settlement agreements — including
`post-class certification settlements — for potentially unfair
`collusion in the distribution of funds between the class and
`their counsel.
`
`BACKGROUND
`
`For many years, ConAgra, then-owner of Wesson Oil,
`labeled that product as “100% Natural.” In 2011, Robert
`Briseño and others sued ConAgra, alleging that “100%
`Natural” was misleading because Wesson Oil contains
`ingredients made from genetically modified organisms
`(“GMOs”).
`
`Three years later, plaintiffs sought class certification.
`Relying on the expert report of Colin B. Weir, they argued
`that they overpaid for Wesson Oil based on the “100%
`Natural” label. ConAgra responded that its market research
`showed that less than 3 percent of consumers bought the
`product because of that label. Although Weir testified that
`hedonic regression could quantify the supposed price
`premium charged for that label, he did not try to calculate it
`at first.
`
`the
`challenged
`then
`Unsurprisingly, ConAgra
`admissibility of Weir’s report. Enlisting its own expert,
`ConAgra asserted that historical price data showed that the
`label did not affect the price of Wesson Oil. According to
`ConAgra, if the public had cared about the “100% Natural”
`claim, then the price of Wesson Oil should have declined
`after ConAgra removed that claim from the product’s label.
`The district court agreed, denying plaintiffs’
`first
`certification request.
`
`

`

`
`
`
`BRISEÑO V. HENDERSON
`
`7
`
`Still hoping to strike oil, plaintiffs filed an amended
`motion for class certification. This time, however, they
`supplemented Weir’s expert material with a supporting
`opinion by Dr. Elizabeth Howlett. Together, plaintiffs’
`experts asserted that consumers paid a 2.28% price premium
`for the allegedly mislabeled products. Furthermore, Dr.
`Howlett suggested that a conjoint analysis could help
`determine how consumers value “GMO content.” Plaintiffs,
`however, never submitted that conjoint analysis. ConAgra,
`again, sought to strike plaintiffs’ experts and opposed class
`certification.
`
`This time, the court denied ConAgra’s motions and
`certified a Rule 23(b)(3) damage class, though it refused to
`certify a 23(b)(2) injunctive class for lack of standing.
`ConAgra twice pursued Rule 23(f) interlocutory review of
`class certification. It lost both appeals and an attempt to seek
`certiorari. The parties began settlement negotiations shortly
`after that.
`
`Meanwhile, ConAgra agreed to sell Wesson Oil to The
`J.M. Smucker Company in May 2017. About two months
`later, ConAgra voluntarily removed the disputed label, and
`stopped marketing Wesson products as “natural.” ConAgra
`maintains that this litigation played no role in either decision.
`In early 2018, the Smucker deal hit an insurmountable
`regulatory jam. Undeterred, ConAgra sought a new suitor
`for Wesson. At the same time, it engaged in mediation with
`the certified class. The district court assigned Magistrate
`Judge McCormick to help the parties grease the wheels of
`justice, and they emerged with an agreement-in-principle in
`November 2018. A month later, ConAgra agreed to sell
`Wesson to Richardson International. The deal closed in
`February 2019. The next month, the parties proposed a
`settlement agreement.
`
`

`

`8
`
`
`BRISEÑO V. HENDERSON
`
`ConAgra agreed to provide, in relevant part:
`
`(a) $0.15 for each unit of Wesson Oils
`purchased to households submitting valid
`claim forms (to a maximum of thirty units
`without proof of purchase, and unlimited
`units with proof of purchase) (b) an
`additional fund of $575,000
`to be
`allocated to New York and Oregon class
`members submitting valid claim forms,
`as compensation for statutory damages
`under those states’ consumer protection
`laws, and (c) an additional fund of
`$10,000 to compensate those in all
`classes
`submitting valid proof of
`purchase
`receipts more
`than
`thirty
`purchases, at $0.15 for each such
`purchase above
`thirty, with Class
`Counsel paying any non-funded claims
`(i.e., claims above the $10,000 provided
`by ConAgra) from any attorneys’ fees
`awarded in this case.
`
`With a class of nearly 15 million consumers, ConAgra
`claimed that it theoretically exposed itself to nearly
`$67.5 million in claims if every consumer submitted a claim.
`(Spoiler alert: that never happens — not even close). The
`settlement agreement established a fund on a claims-made
`basis — i.e., ConAgra would pay out for only those claims
`submitted by consumers. The settlement, however, did not
`require ConAgra to identify or provide direct notice to class
`members.
`
`The settlement agreement also provided injunctive
`relief: Should ConAgra have seller’s remorse and decide to
`reacquire the Wesson brand in the future, it agreed not to
`
`

`

`BRISEÑO V. HENDERSON
`
`
`
`advertise or market Wesson Oil as “natural,” unless the FDA
`permits the use of the term to describe oil derived from GMO
`seeds. Relying on Mr. Weir’s analysis, the parties asserted
`that the “the value of the injunctive relief to the Classes” is
`$27 million.
`
`9
`
`Finally, the settlement stated that plaintiffs would
`request — and ConAgra would not contest — $6.85 million
`in attorneys’ fees and expenses. That amount would come
`directly from ConAgra and be separate from the class
`settlement fund. If the court, however, sliced the agreed-
`upon attorneys’ fees, that reduction would revert to ConAgra
`rather than the class.
`
`The parties thus represented that their settlement could
`theoretically be worth over $100 million — around
`$95 million in value to the class ($67.5 million in potential
`payout and $27 million in injunctive relief value), along with
`another $6.85 million for the attorneys. Yet, when the dust
`settled, ConAgra shelled out less than $8 million, with a
`mere $1 million of that going to the class. Class counsel’s
`fees swallowed $5.85 million, and expenses devoured
`another $978,671. Of the 15 million class members, barely
`more than one-half of one percent of them submitted a claim.
`
`Only one class member opted out of the settlement.
`M. Todd Henderson, a law professor at the University of
`Chicago, objected to the settlement under Rule 23(e),
`arguing that attorneys hoarded 88% of the class’s actual
`recovery. He asserted that our precedent required the court
`to treat the settlement as a constructive common fund (i.e.,
`the settlement effectively establishes one common fund to
`pay out both the class members and their counsel).
`Henderson also contended that the settlement’s “clear
`sailing” provision (i.e., ConAgra’s refusal to challenge the
`agreed-upon attorney’s fees) and “kicker” clause (i.e., any
`
`

`

`BRISEÑO V. HENDERSON
`
`10
`
`reduction in fees reverting to ConAgra, not the class
`members) raised the specter of collusion. He also objected
`to the stipulated value of the injunctive relief, describing it
`as “illusory.” Likewise, Henderson castigated Mr. Weir,
`stating that his failure to conduct a price comparison
`rendered his opinion unreliable.
`
`Plaintiffs sought final approval of the settlement in July
`2019. Based on Mr. Weir’s declaration, they valued
`ConAgra’s label change at $19,080,000. They also
`contended that, if Wesson’s new owner, Richardson,
`continued to refrain from labeling the product as “natural”
`for even a year, the value of the injunction would surge to
`$30.2 million. And for each year that Richardson did not
`label Wesson Oil as “natural,” the class would obtain an
`annual benefit of over $11 million, according to Mr. Weir.
`Plaintiffs argued
`that
`the fee request “represent[ed]
`approximately 25.4% of the parties’ estimated value of the
`injunctive relief or 23% of Plaintiffs’ conservative
`estimate[].” They also calculated their own lodestar fee at
`around $11.499 million.
`
`When the claims deadline passed, class members made
`97,880 timely claims for $418,919, a shadow of the
`$67.5 million potential liability that ConAgra touted in
`seeking approval of the settlement. Even with separately
`funded pools for New York and Oregon, ConAgra would
`pay class members a maximum of $993,919. Out of a class
`of 15 million consumers, fewer than 100,000 would receive
`a single cent.
`
`The district court held its final fairness hearing in
`October 2019. Henderson and class counsel remained
`loggerheads on almost every issue. The parties disputed
`whether Henderson as an objector, or plaintiffs as
`proponents, bore the burden of establishing that the
`
`

`

`BRISEÑO V. HENDERSON
`
`
`
`settlement satisfied Rule 23(e). Henderson argued that the
`“kicker” demonstrated ConAgra’s willingness to settle for
`roughly $8 million, and that class counsel bargained away
`absent class members’ rights in exchange for much of the
`settlement. The district court disagreed.
`
`11
`
`Rejecting Henderson’s motion to strike Mr. Weir’s
`expert report, the district court explained that “[h]aving one
`expert’s opinion — however purportedly flawed — on the
`value of that injunction helps the Court develop its own
`view.” Despite recognizing the parties’ “vigorous dispute
`over the precise valuation,” it still found that “the injunction
`adds at least some value to the amount offered in
`settlement.” It continued, “even if there were no injunctive
`relief, the [c]ourt would likely find that the amount offered
`in settlement was fair and reasonable given the likely
`obstacles to Plaintiffs recovering [at trial].”
`
`The district court went on to evaluate the settlement for
`fairness under our decision in Staton v. Boeing Co., 327 F.3d
`938, 959 (9th Cir. 2003). It explained that the length and
`nature of the suit allowed both sides to evaluate the costs and
`benefits of protracted litigation, supplemented by the
`recommendation of a court-appointed mediator. Again, the
`court’s concerns over the merits of the plaintiffs’ suit heavily
`influenced its analysis. The court, however, stopped short of
`conducting a Rule 23(e) inquiry. Instead, it merely held that
`“[t]here is substantial overlap between [Rule 23(e)(2)]
`factors and the Staton factors.”
`
`The court, “rel[ying] on the lodestar method,” found
`class counsel’s $6.85 million reasonable given the lodestar
`amount of “nearly $11.5 million.” Indeed, the court
`appeared impressed that “Defendant [was] willing to pay
`anything at all given the many liability and damages issues
`this case has had from the beginning.” The court also
`
`

`

`BRISEÑO V. HENDERSON
`
`12
`
`pointed to “the amount of hours reasonably spent on the
`litigation, counsel’s efforts in litigating this years-long
`complex action, the results achieved, and the risks inherent
`in continued litigation.”
`
`It also emphasized the “substantial” nature of “the
`[$0.15] per-unit award,” given that it had restricted relief to
`“only
`the portion of [the] premium attributable
`to
`consumers’ belief that ‘100% natural’ meant that the
`products were GMO-free.” It thus concluded that “[t]he
`settlement amount offered provide[d] an immediate and
`tangible benefit to class members and eliminate[d] the risk
`that they could receive less than that amount, or nothing at
`all, if litigation continued.”
`
`And while the court “appreciate[d] Objector’s high-level
`concerns regarding an apparent trend [sic] toward class
`action settlements disproportionately benefitting attorneys,”
`it was “not persuaded” that “the disproportionate attorney
`fee award under the settlement render[ed] the entire
`settlement unfair.” Rather, the court maintained that “the
`record in this case sufficiently ‘dispel[s] the possibility that
`class counsel bargained away a benefit to the class in
`exchange for their own interests.’” Henderson timely
`appealed, and we have jurisdiction under 28 U.S.C. § 1291.
`
`STANDARD OF REVIEW
`
`We review for abuse of discretion a district court’s
`decision to approve a class action settlement. Roes, 1–2 v.
`SFBSC Mgmt., LLC, 944 F.3d 1035, 1043 (9th Cir. 2019).
`“A [district] court abuses its discretion when it fails to apply
`the correct legal standard or bases its decision on
`unreasonable findings of fact.” Nachshin v. AOL, LLC,
`663 F.3d 1034, 1038 (9th Cir. 2011). Even so, “[a]ppellate
`review of a settlement agreement is generally ‘extremely
`
`

`

`13
`
`BRISEÑO V. HENDERSON
`
`
`
`limited.’” Dennis v. Kellogg Co., 697 F.3d 858, 864 (9th
`Cir. 2012) (citing Hanlon v. Chrysler Corp., 150 F.3d 1011,
`1026 (9th Cir. 1988)). We, however, “hold district courts to
`a
`‘higher procedural
`standard when making
`[a]
`determination of substantive fairness.’” Roes, 1–2, 944 F.3d
`at 1043 (quoting Allen v. Bedolla, 787 F.3d 1218, 1223 (9th
`Cir. 2015)). See also Dennis, 697 F.3d at 864 (explaining
`that “‘[t]o survive appellate review, the district court must
`show it has explored comprehensively all factors,’ and must
`give ‘a reasoned response’ to all non-frivolous objections”
`(citing Officers for Justice v. Civil Serv. Comm’n, 688 F.2d
`615, 624 (9th Cir. 1982))). Thus, this court “will rarely
`overturn an approval of a” compromised settlement “unless
`the terms of the agreement contain convincing indications
`that . . . self-interest rather than the class’s interest in fact
`influenced the outcome of the negotiations.” Staton,
`327 F.3d at 960; Allen, 787 F.3d at 1223.
`
`“We also review for abuse of discretion a district court’s
`award of fees and costs to class counsel, as well as its method
`of calculation.” Labatz v. U.S. Cellular of Cal., Inc., 22 F.3d
`1142, 1148–49 (9th Cir. 2000).
`
`ANALYSIS
`
`I. The district court erred by failing to apply the new
`Rule 23(e)(2), which requires courts to scrutinize
`attorneys’ fee arrangements.
`
`A. Under the newly revised Rule 23(e)(2), courts should
`apply the Bluetooth factors even for post-class
`certification settlements.
`
`Rule 23(e) imposes on district courts an independent
`obligation to ensure that any class settlement is “fair,
`reasonable, and adequate,” accounting for the interests of
`
`

`

`BRISEÑO V. HENDERSON
`
`14
`
`absent class members. Fed. R. Civ. P. 23(e)(2). Likewise,
`we recognize “an independent obligation to ensure that [any
`attorneys’ fee] award,
`like
`the settlement
`itself,
`is
`reasonable, even if the parties have already agreed to an
`amount.” In re Bluetooth Headset Products Liability
`Litigation, 654 F.3d 935, 941 (9th Cir. 2020); see also
`Staton, 327 F.3d at 960–64. Indeed, settlement agreements
`“warrant special attention when the record suggests that
`settlement is driven by fees; that is, when counsel receive a
`disproportionate distribution of the settlement.” Hanlon,
`150 F.3d at 1021. Regardless of “whether the attorneys’ fees
`come from a common fund or are otherwise paid, the district
`court must exercise its inherent authority to assure that the
`amount and mode of payment of attorneys’ fees are fair and
`proper.” Zucker v. Occidental Petroleum Corp., 192 F.3d
`1323, 1328 (9th Cir. 1999).1
`
`Before the 2018 amendment, Rule 23 stated that class
`settlements should be “fair, reasonable, and adequate” but
`did not elaborate. Like our sister circuits, we filled in the
`gaps, instructing courts to consider the following factors
`(sometimes called “Hanlon factors” or “Staton factors”) in
`assessing whether a settlement is “fair, reasonable, and
`adequate”:
`
`[T]he strength of the plaintiffs’ case; the risk,
`expense, complexity, and likely duration of
`
`
`1 While we do not address whether the settlement agreement
`amounts to a constructive common fund as alleged by Henderson, the
`district court on remand should review the settlement structure to
`determine whether to apply common fund principles to its 23(e) inquiry.
`See Bluetooth, 654 F.3d at 948–49 (explaining that “[e]ven when
`technically funded separately, the class recovery and the agreement on
`attorneys’ fees [are] a package deal . . . for purposes of analyzing . . . the
`settlement’s overall reasonableness”) (internal quotations omitted).
`
`

`

`
`
`
`BRISEÑO V. HENDERSON
`
`15
`
`further litigation; the risk of maintaining
`class action status throughout the trial; the
`amount offered in settlement; the extent of
`discovery completed and the stage of the
`proceedings; the experience and views of
`counsel; the presence of a governmental
`participant; and the reaction of the class
`members to the proposed settlement.
`
`Hanlon, 150 F.3d at 1026; Staton, 327 F.3d at 959 (internal
`citations and quotations omitted). Admittedly, we never
`explicitly mandated consideration of the terms of attorneys’
`fees in the Hanlon/Staton factors.
`
`On the other hand, we have recognized the risks in
`allowing counsel to bargain on behalf of the entire class,
`especially pre-class certification when counsel may try to
`strike a quick settlement on behalf of the class. See Staton,
`327 F.3d at 960. In Bluetooth, we explained that courts
`should scrutinize agreements for “subtle signs that class
`counsel have allowed pursuit of their own self-interests . . .
`to infect the negotiations.” 654 F.3d at 947. We identified
`three of those signs: (1) “when counsel receive[s] a
`disproportionate distribution of the settlement”; (2) “when
`the parties negotiate a ‘clear sailing arrangement,’” under
`which the defendant agrees not to challenge a request for an
`agreed-upon attorney’s fee; and (3) when the agreement
`contains a “kicker” or “reverter” clause that returns
`unawarded fees to the defendant, rather than the class. Id.
`In reviewing settlements struck before class certification,
`district courts must apply these so-called Bluetooth factors
`to smoke out potential collusion.
`
`Last year, we noted that “Bluetooth therefore left open a
`question no subsequent case has answered,” whether its
`
`

`

`BRISEÑO V. HENDERSON
`
`16
`
`to post-class certification
`inquiry applies
`heightened
`settlements. Campbell v. Facebook, Inc., 951 F.3d 1106,
`1125–26 (9th Cir. 2020). We now answer that question:
`indeed, it does.
`
`That answer flows from the revised Rule 23(e). In
`December 2018, Congress and the Supreme Court amended
`Rule 23(e) to set forth specific factors to consider in
`determining whether a settlement is “fair, reasonable, and
`adequate,” including:
`
`23(e)(2)(C): [Considering whether] the
`relief provided for the class is adequate,
`taking into account:
`
`(i)
`
`(ii)
`
`the costs, risks, and delay of trial
`and appeal;
`
`any
`of
`effectiveness
`the
`of
`proposed
`method
`distributing relief to the class,
`including
`the method
`of
`processing class-member claims;
`
`(iii)
`
`the terms of any proposed
`award of attorney’s
`fees,
`including timing of payment; and
`
`(iv)
`
`any agreement required to be
`identified under Rule 23(e)(3).
`
`treats class
`the proposal
`23(e)(2)(D):
`members equitably relative to each other.
`
`Fed. R. Civ. P 23(e)(2)(C)–(D) (emphasis added).
`
`

`

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`BRISEÑO V. HENDERSON
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`17
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`Under this revised text, district courts must now consider
`“the terms of any proposed award of attorney’s fees” when
`determining whether “the relief provided for the class is
`adequate.” Fed. R. Civ. P. 23(e)(2)(C)(iii). While none of
`our sister circuits has yet directly addressed what this
`provision specifically requires,2 the plain language indicates
`that a court must examine whether the attorneys’ fees
`arrangement shortchanges the class. In other words, the new
`Rule 23(e) makes clear that courts must balance the
`“proposed award of attorney’s fees” vis-à-vis the “relief
`provided for the class” in determining whether the settlement
`is “adequate” for class members.
`
`Nothing in the Rule’s text suggests that this requirement
`applies only to pre-certification settlements. Congress
`required courts to scrutinize attorney’s fees, even if the
`settlement occurred after class certification. And for good
`reason, too: The specter of collusion still casts a long shadow
`
`
`2 The Second Circuit provided some guidance in Fresno Cty. Emps.’
`Ret. Assoc. v. Isaacson/Weaver Family Trust, 925 F.3d 63, 71–72 (2d
`Cir. 2019) (describing 23(e)(2), in a post-certification class settlement
`context, as a “backstop that prevents unscrupulous counsel from quickly
`settling a class’s claims to cut a check” and involving “judicial review of
`class-action settlements with a ‘searching assessment’ of counsel’s fee
`award”) (internal citations omitted). But several district courts have
`conducted limited Rule 23(e)(2)(C)(iii) analyses, albeit without fulsome
`inquiry into its textual requirements. See In re MyFord Touch Consumer
`Litig., No. 13-CV-03072-EMC, 2019 WL 1411510 at *8–9 (N.D. Cal.
`Mar. 28, 2019) (citing Hanlon, 150 F.3d at 1026); In re GSE Bonds
`Antitrust Litig., 414 F. Supp. 3d 686, 693 (S.D.N.Y. Nov. 7, 2019);
`Gumm v. Ford, No. 5:15-CV-41-MTT, 2019 WL 479506, at *3 (M.D.
`Ga. Jan 17, 2019) (quoting Fed. R. Civ. P. 23 Advisory Comm.’s Note,
`2018 amend.); In re J.P. Morgan Stable Value Fund ERISA Litig.,
`No. 12-CV-2458 (VSB), 2019 WL 4734396, slip op. at *2–5 (S.D.N.Y.
`Sept. 23, 2019).
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`BRISEÑO V. HENDERSON
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`over post-class certification settlements when they involve
`divvying up funds between class members and class counsel.
`
`We have observed that courts should scrutinize pre-class
`certification settlements because plaintiffs’ counsel may
`collude with the defendant to strike a quick settlement
`without devoting substantial resources to the case. See, e.g.,
`Hanlon, 150 F.3d at 1026 (adopting other circuits’ “more
`probing inquiry” for “settlement approval that takes place
`prior to formal class certification”). The potential for
`collusion reaches its apex pre-class certification because,
`among other things, (1) the court has not yet approved class
`counsel, who would owe a fiduciary duty to the class
`members; and (2) plaintiffs’ counsel has not yet devoted
`substantial time and money to the case, and may be willing
`to cut a quick deal at the expense of class members’ interests.
`See generally In re General Motors Corp. Pick-Up Truck
`Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 788–90 (3d Cir.
`1995).
`
`In contrast, by the time a court has certified a class — the
`theory goes — the parties have vigorously litigated the
`dispute, reducing the chance that class counsel will settle on
`the cheap for a quick buck. By devoting substantial time and
`resources to the case, class counsel has skin in the game,
`guaranteeing his or her interest in maximizing the size of the
`settlement fund. Likewise, because a district court has
`appointed class counsel who owes a fiduciary duty to the
`class members, class counsel would be ethically forbidden
`from sacrificing the class members’ interests. See Allen,
`787 F.3d at 1223.
`
`All of this is true — but also beside the point. Simply
`put, class certification does not cleanse all sins, especially
`when it involves potential collusion over divvying up funds
`between class counsel and the class (rather than the size of
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`BRISEÑO V. HENDERSON
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`the settlement fund or relief). See Staton, 327 F.3d at 972
`n.22 (recognizing “the inherent tensions among class
`representation, defendant’s interests in minimizing the cost
`of the total settlement package, and class counsel’s interest
`in fees”).
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`19
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`Even after a court has certified a class, class counsel still
`has the incentive to conspire with the defendant to reduce
`compensation for class members in exchange for a larger fee.
`A defendant goes along with this collusion because it cares
`only about the total payout, not the division of funds between
`class and class counsel. After all, a defendant, no matter if a
`class has been certified, has “no reason to care about the
`allocation of its cost of settlement between class counsel and
`class members.” Pearson v. NBTY, Inc., 772 F.3d 778, 783
`(7th Cir. 2014) (Posner, J.). Instead, “all it cares about as a
`rational maximizer of its net worth is the bottom line — how
`much the settlement is likely to cost it.” Id.
`
`Consider this example. What would any rational
`defendant do if faced with these two settlement options:
`(1) establish a $10 million fund for class members and pay
`$3 million in fees to class counsel for a total payout of
`$13 million, or (2) set up a $7 million fund and pay
`$4 million to class counsel for a total payout of $11 million.
`A defendant would choose the second option because it
`would save $2 million, even though it shortchanges class
`members. Nothing about class certification can make a
`defendant care more about its opponents than its own bottom
`line.
`
`Put another way, a post-class certification settlement
`only ensures that the parties litigated aggressively to arrive
`at an adequate total fund size; it does not, however, address
`the inherent incentives that tempt class counsel to elevate his
`or her own interest over those of the class members. As one
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`prominent academic who supports class actions put it, “the
`profit motive will give class action lawyers incentives to do
`sneaky things, just like it gives businesses incentives to do
`sneaky things.” Brian T. Fitzpatrick, The Conservative Case
`for Class Actions 72 (2019). The potential for this type of
`collusion is no hoax — it is real, whether a class has been
`certified or not.
`
`Congress sought to end this practice by changing the text
`of Rule 23(e)(2)(C). We thus now hold that courts must
`apply Bluetooth’s heightened scrutiny
`to post-class
`certification settlements in assessing whether the division of
`funds between the class members and their counse