On September 17, 2020, the U.S. Court of Appeals for the Eleventh Circuit issued a bombshell decision: A court may not award an incentive fee to a class representative. This is surprising, if not shocking, as it is standard operating procedure in state and federal courts to award an incentive fee to a class representative to reward him or her for the time and effort he or she spent on behalf of the class. While parties sometimes fight about the amount of the incentive, and the court sometimes reduces the requested amount, no other courts have ruled that such payments are not allowed. Perhaps even more surprising is that in rendering its decision, the Eleventh Circuit cited two cases that were decided in the 1880s! This post will briefly summarize the decision and discuss its potential impact on mediation and the courts.
The case at issue is Johnson v. NPAS Sols., LLC, 2020 WL 5553312 (11th Cir. Sept. 17, 2020). The case was a consumer class action involving unwanted telephone calls from a collection agency. The parties reached a settlement that included an incentive award of $6,000 to class rep Charles T. Johnson. The trial court approved the settlement, but an objector appealed, and the case was sent to the Eleventh Circuit. The circuit court made several rulings, but the surprising one was that it agreed with the objector that two United States Supreme Court decisions disallow an incentive payment to a class rep. One case was decided in 1882; the other, in 1885. The Eleventh Circuit held that incentive awards are improper because they are “intended not only to 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).”
The two Supreme Court cases relied upon by the Eleventh Circuit are Trustees v. Greenough, 105 U.S. 527 (1882) and Central Railroad & Banking Co. of Georgia v. Pettus, 113 U.S. 116 (1885). In each case, the court ruled that a lead member of a class or group who incurs litigation expenses and attorneys’ fees may properly be reimbursed from the settlement fund. However, such a class representative could not be reimbursed for his or her own personal time devoted to the case, which the court called his or her “salary,” or for his or her private expenses.
Although it noted that these two cases preceded the Federal Rules of Civil Procedure, especially Rule 23, which governs class actions, the Eleventh Circuit nevertheless held those cases to be binding precedent in today’s class action world. Typically, a class representative does not incur attorneys’ fees or other litigation costs; such fees are borne by the class as a whole. When a plaintiff in a modern class action seeks an incentive award, it is generally for the time he or she spent assisting counsel on the case, being deposed and/or preparing for and attending a mediation. To reimburse the class rep for his or her time and effort would be to grant him or her a salary, something the 1880s cases prohibit. Moreover, the Eleventh Circuit deemed such an award a “bounty,” which would only serve to incentivize class reps to bring more litigation so they can collect more money for themselves.
In sum, the Eleventh Circuit, while acknowledging that incentive awards are common, held that these awards are tantamount to paying class representatives for their time, which amounts to a salary, which was disallowed by Greenough and Pettus. Although the cases are quite old, they have never been overruled by the Supreme Court and must be followed today.
What impact might this anomalous decision have on class action litigation? First, as a mediator specializing in wage and hour class actions, I can see this decision leading to one more sticking point. The amount of the class rep incentive is often one of several issues the parties disagree on, and if the defense thinks that this incentive isn’t permitted at all, settlement will become that much more difficult. Second, if counsel want the class rep to bless a proposed settlement during the mediation, it will be a lot easier if the rep feels that he or she is being fairly compensated for his or her time and effort. Mediating class actions is tough enough without this added layer of uncertainty, and is likely to become more difficult in federal cases in those states that are part of the Eleventh Circuit: Alabama, Georgia and Florida. Depending on whether other courts decide to follow the Eleventh Circuit’s lead, mediation of all class actions, both consumer and employment, could become more challenging.
For this reason, I hope that the Johnson case remains an outlier. Trying to import 19th century legal values to the 21st century is dangerous at best. Our system of class actions, including mediating and trying them, is dependent on compensating class reps for the work they do. Otherwise, what incentive do they have to take on the role?
Joel M. Grossman is a mediator and arbitrator with JAMS in Los Angeles.
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