United States: 11th Circuit Eliminates Incentive Awards For Class Action Plaintiffs

In a split decision, the 11th Circuit rejected a $6,000 incentive award for the named plaintiff in a TCPA class action. According to the majority in Johnson v. NPAS Solutions, LLC, U.S. Supreme Court precedent prohibits such awards-a holding that is bound to discourage class actions in the 11th Circuit. The decision is the most recent in a series of 11^th Circuit rulings against TCPA plaintiffs.

The named plaintiff in Johnson alleged, on behalf of himself and a putative class, that defendant NPAS Solutions, LLC, violated the TCPA by using an automatic telephone dialing system to call cell phone numbers that had been reassigned to a non-consenting consumer. The case quickly settled, and the plaintiff moved to certify a settlement class. The district court granted preliminary approval, appointing the plaintiff as the class representative and his attorneys as class counsel. It also set a deadline for class members to object to the settlement that was nearly three weeks before the parties had to submit their petitions for fees and costs and their motion for final approval of the settlement.

One class member objected to the settlement, taking issue with, among other things, the proposed $6,000 incentive award for the named plaintiff (which the objector had learned about through the settlement notice). The parties thereafter moved for final approval of the settlement, requested attorney's fees and costs, and opposed the objection, arguing that the settlement was fair. After holding a final fairness hearing, the district court sided with the parties and issued an order setting forth its fairness findings in a single, boilerplate sentence and awarding the named plaintiff a $6,000 incentive payment. (Remaining class members who submitted claims stood to receive only $79.) The order also stated, without explanation, that the objection "is OVERRULED."

The objector appealed. Agreeing with the objector, the 11th Circuit held that the Supreme Court's decisions in Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885), prohibit incentive awards. In Greenough (and reiterated a few years later in Pettus), the Supreme Court refused the plaintiff's request for an award to compensate for his "personal services and private expenses" incurred in successfully bringing a claim on behalf of himself and other bondholders. According to the Supreme Court, such an award "would present too great of a temptation to parties to intermeddle in the management of valuable property or funds in which they have only the interest of creditors." The Johnson majority concluded that an incentive award was "roughly analogous" to a payment for personal services barred in Greenough and, if anything, presented an even greater risk of intermeddling to the extent the award provides a "bounty" for bringing suit.

Notably, the 11th Circuit appears to be the only circuit to have applied Greenough and Pettus to bar incentive awards. While the 11th Circuit acknowledged that a contrary Second Circuit opinion had disregarded Greenough and Pettus as factually inapposite, it also explained that challenges to incentive awards are "few and far between" because the challenge must come from objectors, who have minimal incentives to assert a challenge. As a result, there are few opportunities for courts to consider the legal basis for an incentive award, which allows them to proliferate in class action settlements "as a product of inertia and inattention, not adherence to the law."

The majority also rejected the dissenting judge's view that Holmes v. Continental Can Co., 706 F.2d 1144 (11th Cir. 1983), required the court to consider simply whether the incentive award is fair. The majority countered that Holmes did not address a salary, bounty, or incentive award for a class representative; rather, it involved whether disparities in payments to the named plaintiffs were justified by the value of their unique, individual claims.

In addition to rejecting incentive awards, the majority held that the district court failed to follow Rule 23(h) when it required objections to be filed before the class representative and counsel were required to move for final settlement approval and fees. It also concluded that the district court failed to adequately explain its rulings, including its denial of the objection to the settlement.

The Johnson decision is the latest in a series of 11th Circuit rulings against TCPA plaintiffs, including Medley v. DISH Network, LLC (holding TCPA does not permit unilateral revocation of contractual consent), Glasser v. Hilton Grand Vacations Co., LLC (narrowly interpreting the definition of an automated telephone dialing system), and Salcedo v. Hanna (holding plaintiff lacked standing where he received only a single text message). Johnson's holding, however, extends beyond the TCPA to limit incentives for class representatives generally. This far-reaching consequence, along with the opposing views of the Second Circuit and dissent, could lead to a rehearing en banc by the 11^th Circuit or Supreme Court review.

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