Last week the Eleventh Circuit delivered a surprising blow to class action settlement practice finding that 19th century Supreme Court precedent “prohibit[s] the type of incentive award that the district court approved here–one that compensates a class representative for his time and rewards him for bringing a lawsuit,” a type of incentive award that is “commonplace in modern class-action litigation.” Retailers and other defendants in class action cases should take note, because this ruling may impact how settlements in the Eleventh Circuit should be structured going forward.
In Johnson v. NPAS Solutions, LLC, No. 18-12344, 2020 WL 5553312 (11th Cir. Sept. 17, 2020), the lead plaintiff sued the defendant alleging violations of the Telephone Consumer Protection Act. Shortly after the case was filed, the parties reached a settlement establishing a settlement fund from which attorneys’ fees and a $6,000 incentive award to the lead plaintiff would be paid. Id. at *1-2. A single putative class member objected to the class settlement arguing, among other things, that the incentive award should be set aside because it was in direct contravention of two Supreme Court decisions from the late 1800s: Trustees v. Greenough, 105 U.S. 527 (1882) and Banking Co. v. Pettus, 113 U.S. 116 (1885). Id. at *3. The district court dismissed the objection, and the objector appealed. Unexpectedly, the Eleventh Circuit agreed with the objector. Id. at *12.
After a detailed analysis of the two 19th century Supreme Court decisions at issue, the Eleventh Circuit determined that those rulings stood for the proposition that a class representative “can be reimbursed for attorneys’ fees and expenses incurred in carrying on the litigation, but he cannot be paid a salary or be reimbursed for his personal expenses.” Id. at *7-9. And because “the modern-day incentive award for a class representative is roughly analogous to a salary,” serving only to “promote litigation by providing a prize to be won,” the court concluded that the incentive award requested by the lead plaintiff was prohibited. Id. The court acknowledged that incentive awards have become common practice, but explained “that the state of affairs is a product of inertia and inattention, not adherence to law.” Id. at *11. Finding that the tradition of awarding incentive awards was “created . . . out of whole cloth,” the court held that it was “not at liberty to sanction a device or practice, however widespread, that is foreclosed by Supreme Court precedent.” Id.
While the Eleventh Circuit did not indicate that all incentive awards would be prohibited, when considering the court’s analysis of the types of awards that would not be allowed (e.g., travel, personal expenses, salaries, and bounties), it is clear that the traditional bases upon which incentive awards are requested are no longer sufficient in the Eleventh Circuit. This decision will likely have broad ranging implications to all manner of class actions beyond the TCPA construct.
Class counsel in Johnson has already stated they intend to seek en banc review of this decision. Given its implications to class action settlements generally, and the fact that this was a divided decision, en banc review seems likely. In the meantime, parties to class actions in the Eleventh Circuit will need to wrestle with how this decision impacts future settlement negotiations.