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Eleventh Circuit Relies on 19th Century Precedent to Find That Class Representative Cannot Recover Commonly-Used Incentive Award

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 bancreview 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.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 266
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About this Author

Partner

Tara provides compliance and litigation advice to financial institutions related to federal and state consumer protection laws.

Tara has extensive experience defending and advising financial institutions in consumer finance litigation and regulatory compliance matters. Tara regularly defends financial institutions in litigation involving various provisions of the Bankruptcy Code, the Fair Credit Reporting Act, Fair Debt Collection Practices Act, Telephone Consumer Protection Act, Truth In Lending Act, Real Estate Settlement Procedures Act, and various state statutes related to...

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Abigail M. Lyle Regulatory Compliance Attorney Hunton Andrews Kurth Dallas, TX
Partner

Abigail’s practice focuses on regulatory compliance and defending financial institutions in enforcement actions and litigation related to consumer protection laws.

Abigail regularly defends financial institutions in litigation involving lending practices and federal and state consumer financial services laws, and advises clients on a variety of compliance issues, including the Equal Credit Opportunity Act, Regulation B, Fair Housing Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act and its state counterparts, Telephone Consumer Protection Act, Unfair Deceptive or Abusive Acts or Practices, Bank Secrecy Act/Anti-Money Laundering, and flood insurance issues. She also regularly represents financial institutions, directors, and officers in regulatory enforcement actions by the Department of Justice, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Federal Reserve, and U.S. Department of Housing and Urban Development, including responding to “15 day letters,” notices of violation, and administrative proceedings on issues relating to lending practices and debt instruments.

Abigail served as a judicial clerk for the Honorable William P. Dimitrouleas of the U.S. District Court for the Southern District of Florida from 2009-2011. Abigail is admitted to practice before the U.S. Court of Appeals for the Fifth Circuit, the U.S. Court of Appeals for the Eleventh Circuit, the U.S. District Courts for the Southern, Middle, and Northern Districts of Florida, the U.S. District Courts for Eastern, Northern, Southern, and Western Districts of Texas, and the U.S. District Court for the Eastern District of Wisconsin.

Relevant Experience

  • Represented numerous financial institutions, directors, and officers in regulatory enforcement actions and examinations by the Department of Justice, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Federal Reserve, and U.S. Department of Housing and Urban Development.
  • Represented over two dozen financial institutions in Department of Justice referrals and investigations related to fair lending laws.
  • Advised numerous financial institutions regarding analysis of disparate impact related to lending policies and programs.
214-979-8219
Aliza Pescovitz Malouf Consumer Protection Attorney Hunton Andrews Kurth Dallas, TX
Associate

Aliza’s practice focuses on financial institution consumer protection compliance and related litigation.

Aliza regularly defends financial institutions in litigation involving lending practices and federal and state consumer financial services laws, and advises clients on a variety of compliance issues, including the Telephone Consumer Protection Act, Fair Debt Collection Practices Act and its state counterparts, Fair Credit Reporting Act, as well as allegations of violations of state common law relating to lending and collection activities. A skilled negotiator, Aliza has...

214-979-8229
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