Eleventh Circuit Eliminates Incentive Awards for Named Plaintiffs in Class Action Settlements
The Eleventh Circuit Court of Appeals recently upended what has become common practice in class action settlements by ruling that “incentive” awards to named plaintiffs are unlawful.
In Johnson v. NPAS Solutions, LLC, the plaintiff filed a class action lawsuit under the Telephone Consumer Protection Act (TCPA) alleging that the defendant used an automatic telephone dialing system to call cell phones without the proper consent. Less than eight months after the complaint was filed, the parties jointly filed a notice of settlement for an award of $1,432,000. The District Court preliminary approved the settlement and certified the class for settlement purposes. In addition, that order permitted the plaintiff to petition the court to receive an amount not to exceed $6,000 “as acknowledgement of this role in prosecuting this case on behalf of class members.” The court also set a date for class members to opt out of the class settlement and a date three weeks later for class counsel to submit their petition for attorneys’ fees and costs. One person objected to the settlement on the grounds that (1) the objection deadline was set before the deadline for class counsel to file their attorneys’ fee petition, which she contended violated Federal Rule of Civil Procedure 23 and the Due Process Clause; (2) the amount of the settlement should have been higher; (3) the court should have conducted a lodestar calculation in determining reasonable attorneys’ fees; and (4) plaintiff’s $6,000 incentive award both contravened Supreme Court precedent and created a conflict of interest between the plaintiff and class members. The District Court overruled the objections and approved the class settlement.
The Eleventh Circuit reversed on appeal. First, the court held that “Rule 23(h)’s plain language requires a district court to sequence filings such that class counsel file and serve their attorneys’ fee motion before any objection pertaining to fees is due.” As the court reasoned, following the plain language of Rule 23(h) “ensures that class members have full information when considering . . . a fee request” as well as “ensures that the district court is presented with a fee petition that has been tested by the adversarial process.”
Second, the Court held that incentive awards to class plaintiffs beyond attorneys’ fees and litigation expenses are prohibited. The Eleventh Circuit reasoned that, according to long-standing Supreme Court precedent from the 1800s, Trustees v. Greenough, 105 U.S. 527 (1882) and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885), “[a] plaintiff suing on behalf of a class 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.” Modern day incentive awards, according to the court, are analogous to a salary. Such awards are “designed to induce a class representative to a participate in the suit” and “may lead named plaintiffs to expect a bounty for bringing suit or to compromise the interest of the class for personal gain.”
Going forward, class plaintiffs in the Eleventh Circuit will no longer receive incentive awards in class settlements. That impact can be seen in a recent decision from a Florida District Court, which rejected class counsel’s proposed “service award payments.” At least in the Eleventh Circuit, the Johnson ruling removes any financial incentive for class representative plaintiffs to institute class action lawsuits, particularly in TCPA class actions where people and companies can be incentivized to become serial class action plaintiffs. We will continue to monitor to see if other circuits follow suit.