On September 17, 2020, in a first-of-its-kind opinion, the Eleventh Circuit reversed in part a district court’s approval of a class action settlement, holding that “incentive awards”—payments routinely provided to named plaintiffs in class actions for their service as class representatives—are per se invalid.

• The Eleventh Circuit considered an objection to a class-wide settlement of claims under the Telephone Consumer Protection Act (“TCPA”). The $1.4 million settlement provided the class representative with a $6,000 incentive award.
• The objector relied on a pair of century-old Supreme Court cases, Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885), in arguing that the incentive award was impermissible, and the Eleventh Circuit agreed.
• Greenough and Pettus established that attorneys’ fees can be paid from a “common fund”—a rule now commonly applied in class actions. According to the court, those cases also established important limits on the types of awards attorneys and litigations may recover from a common fund, resulting in a “fairly clear” rule: “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.”
• Though the two Supreme Court cases were decided long before the advent of the modern class action, the Eleventh Circuit found the incentive award analogous to the payment of “personal expenses” Greenough and Pettus rejected, a practice which the Supreme Court called “decidedly objectionable.” The Eleventh Circuit further characterized the incentive award as a “bounty,” and determined that the practice of paying them to class representatives promoted litigation by “providing a prize to be won.”
• As to upending the longstanding practice of providing incentive awards, the Eleventh Circuit explained that the practice was “a product of inertia and inattention, not adherence to law.” While Greenough and Pettus long predate the adoption of Rule 23, the court observed that the Rule has never mentioned incentive awards; thus, the “uncomfortable fact is that the judiciary has created these awards out of whole cloth.”
• Notably, the court did not limit its holding to incentive awards that are drawn from the class’s recovery or that otherwise create conflicts among class—the typical contexts in which incentive awards have been overturned. Rather, the court categorically banned them. In so doing, the court called into question the validity of any class settlement contemplating incentive payments still under review within the courts of the Eleventh Circuit. Indeed, several district courts within the Eleventh Circuit have already cited this opinion and rejected class settlements that include incentive payments. It remains to be seen whether any courts outside of the Eleventh Circuit will follow suit, but we expect certain objectors to begin raising the argument in courts around the country.
• Read the Eleventh Circuit’s opinion in Johnson v. NPAS Solutions, LLC here. The class representative has already filed a petition for rehearing en banc, which you can read here.