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By: Matthew Foree
The Court of Appeals for the Eleventh Circuit recently confronted the issue of incentive awards commonly given to class representatives as part of class-wide settlements. The court held in Johnson v. NPAS Sols., LLC, which can be found here, that such an award was inappropriate.
Plaintiff Charles T. Johnson filed the underlying case as a Telephone Consumer Protection Act (“TCPA”) class action. The case proceeded to the settlement phase during which Johnson moved to certify the class for settlement purposes. The trial court preliminarily approved the settlement and certified the class. The court also appointed Johnson as the class representative and permitted him to petition the Court to receive an amount not to exceed $6,000 as an incentive award to acknowledge his role in prosecuting the case on behalf of the class members. Such awards are common in the class action context.
After the class members were notified of the settlement, only one class member, Jenna Dickenson, objected to the settlement. This class member, the appellant in the Eleventh Circuit case, objected to the settlement on various grounds, including that the incentive award contravened U.S. Supreme Court precedent and created a conflict of interest between Johnson and the other class members. The trial court overruled the objection and approved the settlement. Dickenson filed the present appeal.
In reviewing the issue, the Eleventh Circuit considered Dickenson’s argument that the trial court’s approval of the incentive award contravened Supreme Court precedent. The court considered the two cases that Dickenson relied on, both of which were decided in the late 1800s. See Trustees v. Greenough¸105 U.S. 527 (1882) and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885). The Eleventh Circuit determined that Greenough and Pettus established limits on the types of awards that attorneys and litigants can recover. Specifically, the Eleventh Circuit determined that Greenough and Pettus provide a rule that 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.” The court analogized an incentive award for a class representative to a salary for “personal services” prohibited by the Supreme Court. Interestingly, the court stated that modern-day incentive awards present more pronounced risks than salary and expense reimbursements, as they not only “compensate class representatives for their time (i.e., as a salary), but also to promote litigation by providing a prize to be won (i.e., as a bounty).” Accordingly, the court reversed the lower court’s approval of the incentive award.
The Eleventh Circuit’s decision in Johnson comes as somewhat of a surprise, given the proliferation of incentive awards in the TCPA class action context. It remains to be seen how broadly this case will be interpreted and whether other courts will use this reasoning to prevent such awards. It also remains to be seen how this will affect the “incentive” for individuals to serve as class representatives, at least in cases in the Eleventh Circuit.
If you have questions or would like more information, please contact Matthew Foree at [email protected].